A rally in banking shares powered Indian shares to their highest close in almost three weeks on Wednesday on speculation the central bank may still deliver a surprise rate cut this week after a key sub-measure of inflation cooled. Although headline inflation, released on Wednesday, picked up for the first time in five years, non-food manufactured inflation, which the central bank uses to gauge demand-driven price pressures, slowed to a 14-month low.
The split picture on inflation revived talk the Reserve Bank of India could still deliver a cut in interest rates on Thursday, after already surprising markets with a 75-basis points cut in the cash reserve ratio for banks last week. Shares in Indian banks have gained since the CRR cut, which was intended to ease the pressure on liquidity. But not all analysts expect another move from the RBI.
"Policy is being looked upon keenly as to whether it will stoke up investment cycle, but my belief is that after the CRR cut, the government will wait for a rate cut," said Nitin Raheja, director of investment firm AQF Partners. The main 30-share BSE index gained 0.6 percent to 17,919.30 points, marking a fourth consecutive session of gains and its highest close since February 24.
The 50-share index rose 0.6 percent to 5,463.90, the highest close since February 23. Among individual banks, ICICI Bank ended up 2.6 percent and State bank of India 1.2 percent. Among other gainers, Tata Motors rose 2.5 percent after unit Jaguar Land Rover said it was boosting UK production of two models, seen as indicating confidence about sales in the European markets.
But among decliners, railway-related shares dropped as traders cited disappointment about a lack of more specifics in the railway budget released on Wednesday, which featured the first passenger fare hike in eight years. Titagarh Wagons dropped 4.3 percent, while Kalindee Rail Nirman Engineers fell 7 percent.
Kingfisher Airlines shares dropped 3.6 percent after its announcement of scaling back overseas flights was followed by an accusation from the country's aviation regulator that it was reneging on a recovery plan. British Airways separately said it had suspended a code-sharing pact with the cash-strapped Indian airline.