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Indian stock markets consolidated last week's gains on the first day (Monday) of the truncated trading week over increasing hopes of an interest rate cut by the Reserve Bank of India (RBI) after the government slashed small savings interest rates last Friday. The S&P BSE Sensex gained 333 points, or 1.33 percent, to close at 25,285, while the NSE Nifty settled at 7,704, up almost 100 points, or 1.31 percent.

The rally was largely driven by bank stocks on hopes that the RBI could cut interest rate by almost 50 percent when it meets for its first monetary policy review meeting for this fiscal April 5. The BSE Bankex rose 304 points, or 1.70 percent, while the Nifty Bank was up 1.73 percent.

"The RBI is widely-expected to lower benchmark rates by 25bps on 5 April, helped by easing inflation, soft production numbers and the government's move to adhere to fiscal targets," said Radhika Rao, economist, group research, DBS Bank, in her note Monday.

However, major changes in lending rates by commercial banks are likely only after the banking sector's quarterly earnings, she added. 

The biggest Sensex gainer though was FMCG company Hindustan Unilever at 4.05 percent. Other top Sensex gainers included State Bank of India, Sun Pharma, Larsen & Toubro and Tata Motors.

Other bank stocks that gained on the BSE included Punjab National Bank, Bank of Baroda, Yes Bank, Axis Bank, HDFC Bank and ICICI Bank.

Foreign institutional investors (FIIs, also FPIs) continued with their buying spree and were net buyers of Indian equities worth Rs 1,396 crore Monday, according to the provisional data released by the National Stock Exchange (NSE).

The Indian rupee closed at 66.54 to the US dollar after opening at 66.45.

The current week is a truncated one for Indian markets, as they will be closed on Thursday for Holi and the next day for Good Friday (March 25).