Market Soars on RBI’s Unprecedented Surplus Transfer
The Indian stock market experienced a significant rally on Thursday, May 23, following the Reserve Bank of India’s (RBI) announcement of its largest-ever surplus transfer to the government. The Sensex jumped over 1,000 points, surpassing the 75,000 mark, while the Nifty reached a record high of 22,959.70, marking an impressive milestone.
Sensex and Nifty Break Records
During the trading session, the BSE Sensex hit an intraday peak of 75,407.39, and the Nifty 50 crossed the 22,900 level for the first time, reflecting robust investor sentiment. This remarkable surge came on the heels of the RBI board’s decision to approve a surplus transfer of Rs 2.11 lakh crore to the government for the fiscal year 2023–24.
RBI’s Record Dividend: A Game Changer
The RBI’s unprecedented dividend of Rs 2.11 lakh crore far exceeded both the budgeted amount of Rs 1.02 lakh crore and market expectations of Rs 1–1.1 lakh crore. This substantial payout is anticipated to help narrow the government’s fiscal deficit for FY2025 by 0.2–0.4 per cent of GDP, according to market experts.
Santosh Meena, Head of Research at Swastika Investmart Ltd, noted, “The Nifty index has surged to a record high following the RBI’s announcement. This significant macroeconomic development positively impacts the market, influencing both the fiscal deficit and bond yields.”
Implications for Fiscal Policy and Economic Growth
Gaura Sen Gupta, Chief Economist at IDFC First Bank, highlighted that the higher dividend represents additional fiscal revenue equivalent to 0.4 per cent of GDP. This boost could mitigate potential shortfalls in disinvestment receipts and slower tax collection growth than initially budgeted, potentially allowing the FY25 fiscal deficit to undershoot the Budget Estimate by 0.2 per cent of GDP.
A report from Kotak Institutional Equities suggested that the surplus transfer provides the government with greater flexibility in adhering to its fiscal consolidation path. There is now room to adjust budgeted receipts and expenditures, potentially increasing allocations for infrastructure projects in roads, railways, and defense.
“The government might also consider reducing personal income taxes to stimulate consumption, particularly for lower-income groups. However, we anticipate a focus on higher capital expenditure and fiscal consolidation rather than tax cuts,” the report added.
Top Gainers in the Market
Among the top performers on the NSE were Adani Enterprises, Axis Bank, Larsen and Toubro Ltd, Adani Ports, and Mahindra & Mahindra. These companies saw significant gains, contributing to the overall positive market sentiment.
Conclusion
The RBI’s record dividend transfer has injected a wave of optimism into the Indian stock market, driving the Sensex and Nifty to new heights. This development not only boosts investor confidence but also provides the government with additional fiscal space to navigate economic challenges and pursue growth-oriented policies.