Nifty hits record high, Sensex jumps 1,200 points. Is RBI behind the sugar rush?

"The higher-than-budgeted RBI surplus transfer would help to boost the government of India's resource envelope in FY2025, allowing for enhanced expenditures or a sharper fiscal consolidation than what was pencilled into the Interim Budget for FY2025. Increasing the funds available for capex would certainly boost the quality of the ," 's chief economist Aditi Nayar said.

In the meantime, investors also took note of Prime Minister Narendra Modi's interview to The Economic Times where he said both BJP and stock will touch fresh record highs on June 4 when Lok Sabha election results would be declared.

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The windfall revenue bonanza from RBI, which is equivalent to about 0.4% of GDP, is being seen as a significant macroeconomic positive for the market, with direct implications for fiscal deficit and .

"The infusion of funds is akin to an indirect rate cut for the , as it is expected to lead to a reduction in bond yields. Since many instruments are linked to government bond yields, this reduction will likely have a broad positive impact across the financial markets. The improved fiscal position could also prompt upgrades in India's economic outlook," said Santosh Meena, Head of Research at .

Economists say the government may choose to spend the whole bonanza and could split them equally or disproportionately between revenue expenditure and capital expenditure, without altering the fiscal deficit/GDP target. They may also partially spend the bonanza and partially use it to reduce market borrowings and fiscal deficit, said 's Lead Economist Madhavi Arora.

"Either way, this bonanza will lead to fall across the sovereign and corporate cost curves and should help keep upward momentum in the bond market. Bull steepening trade is making a comeback in the near-term, especially as easier liquidity in the order," she said.

In simple terms, RBI's decision can help the government to reduce its fiscal deficit and step up infrastructure spending. "The bond yields have declined sharply reflecting lower borrowing by the government. Decline in bond yields is positive for banking stocks," said Dr V K Vijayakumar of .

Nifty Bank outperformed and jumped 1.6% while PSU rail and defence stocks rose in anticipation of increased capex push. GRSE, Cochin Shipyard and Mazagon Dock rallied up to 20%. PSU rail stocks like RVNL and IRFC were trading 7-8% higher.

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Despite continuous selling by FIIs in the cash market, analysts expect that foreigners may shift to buying, which would provide additional support to the market. futures witnessed 2.5% fresh longs intraday. Aggressive Put options writing was seen from the base of 22,500 PE to all the way till 22,800 PE forming strong support base at 22,600/22,700 levels.

"Looking ahead, Nifty may witness further expansion. An immediate target of 23,000 is in sight, with the possibility of reaching 24,000 as the election outcome approaches. However, while large-cap stocks are expected to perform well, mid-cap and small-cap stocks may underperform from this point forward," Meena said.

PM Modi's statement
While stating that investors are well aware of the pro-market reforms implemented, PM Modi said these reforms have created a robust and transparent financial ecosystem, making it easier for every Indian to participate in the stock markets.

"I can say with confidence that on June 4, as BJP hits record numbers, the stock market will also hit new record highs," PM Modi said in an exclusive interview with The Economic Times newspaper.

"Over the past 10 years, if you just take a look at the number of demat accounts, you will understand how citizens have started to show confidence in Indian economy. The number of demat accounts has increased from just 2.3 crore to over 15 crore now. The number of mutual fund investors has increased from 1 crore in 2014 to 4.5 crore today. As a result, we have a broader base of domestic investment," PM Modi said.

Domestic investors, he said, have become more active and vibrant and are playing a more substantial role in our markets than ever before. This is a clear indication of the financialisation of savings that has occurred in the last 10 years, he added.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)