Nifty hits record high, Sensex jumps 1,100 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.

The windfall revenue bonanza, 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 .

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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 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.

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.

"Looking ahead, 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.

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