Bank Stocks Advance As Crude Prices Fall; Canara Bank, Union Bank Among Top Gainers

Stocks of banks came in for heavy demand on May 25, amid the drop in global crude oil rates, indicating positive expectations about inflation as well as interest rates for banks.

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Public sector banks led the rally, with Canara Bank and Union Bank of India rising up to 4%.

The Nifty Bank index climbed as much as 1.9% during intra-day trade, extending gains for the second straight session. The index has advanced more than 3% over the last two trading sessions.

All 14 constituents of the Bank Nifty traded in positive territory during the session. Canara Bank, Union Bank of India and AU Small Finance Bank were among the top performers. The Nifty PSU Bank index gained 2.23%, while the Nifty Private Bank index moved up 1.74%.

The rally followed a sharp correction in international crude oil prices after reports indicated progress in discussions between the U.S. and Iran regarding a possible peace framework linked to the Strait of Hormuz region.

Brent crude futures fell below $100 per barrel for the first time in over two weeks. U.S. West Texas Intermediate crude also declined sharply during Asian trading hours.

Lower Crude Prices Lift Banking Sentiment

Cooling oil prices are generally viewed as favourable for the Indian economy as the country imports a significant share of its crude oil requirements. A decline in crude prices can help moderate imported inflation and reduce pressure on the current account deficit.

The development has also enhanced the expectations of the market concerning interest rates and liquidity conditions at home. The softening inflation trends have provided some more elbowroom to the Reserve Bank of India.

Banking shares reacted positively as lower inflation risks could support borrowing activity and ease pressure on funding costs across the financial sector.

The broader equity market also remained firm during the session, supported by gains in crude-sensitive sectors including banks, oil marketing companies, aviation and automobile-related stocks.

PSU Banks Continue To Outperform

Public Sector lenders continued to be top-performing stocks in the banking segment. Canara Bank and Union Bank of India emerged as two of the best-performing stocks for the day with others in the category trading on the positive side as well.

The private lenders were part of the rally, albeit with lesser gains when compared to the performance of state-owned lenders.

Developments regarding the crude oil supply chain and geopolitical issues in West Asia continue to remain on investors' radar for the time being.

The banks had been quite volatile in their behavior for the quarter because of the fears of rising oil prices, inflation, and the impact of FII selling in the market. The fall in oil prices has boosted the confidence of the investors in financial sector companies.

Going ahead, the key focus areas will include the macroeconomic data and inflation numbers along with RBI's stance on these issues.