New highs for Sensex and Nifty following a dividend payout: Due to significant inflows from foreign portfolio investors (FPIs) and the announcement by the RBI of a record surplus transfer of Rs 2.11 lakh crore, the benchmark stock market indexes Sensex and Nifty saw a 1.6% increase to close at a record high on Thursday.
The BSE’s Sensex ended at a record high of 75,418.04 after scaling 1196.98 points, or 1.61 percent. The Nifty closed at an all-time high of 22,967.65, up 369.85 points, or 1.64 percent.
Some market analysts claim that the RBI’s increased dividend payment to the government is also a result of their belief that the BJP, which now in power, will win elections in the future.
“In the US, interest rates have increased from 0% to 5.25–5.5%. With $645 billion in foreign exchange reserves, the RBI’s earnings have increased significantly. There is no doubt that the timing and quantity (of the surplus to the government) are part of a carefully considered plan. It suggests that the current administration will stay in place,” a market expert who wished to remain anonymous stated.
The RBI has recently produced strong earnings. On its foreign exchange reserves, it has been making about 3% profit. The central bank has been making daily loans in the money market of between 1.5 and 2 lakh crore, with a 6.5% fee. According to the analyst, it also makes money by trading on the foreign market.
Following the elections, the market is signaling political stability with the Nifty setting a new record. Since properly priced large caps are leading the rebound, it is healthy, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
The transfer of Rs 2.11 lakh crore of surplus to the government for the fiscal year 2023–24 was declared by the RBI board on Wednesday. The amount was much above than the market’s projected surplus of Rs 1-1.1 lakh crore as well as the budgeted amount of Rs 1.02 lakh crore (including bank and financial institution dividends) as indicated in the Interim Budget for FY2025.
According to market experts, the government would be able to reduce the FY2025 fiscal deficit by 0.2 to 0.4 percent thanks to the large dividend. Reducing the budget deficit aim from 5.8% of GDP in FY24 to 5.1% of GDP in FY25 is an ambitious goal set by the government.
“The optimistic tone for Indian markets today was set by RBI’s record-breaking dividend of Rs 2.1 lakh crore, which was approximately Rs 1.2 lakh crore higher than anticipated. Today, FII net buying reached a high of Rs 4,670 crores, a record for several weeks. We are in for some fascinating times if this FII buying trend continues, as DIIs have been leading the way for the past two months, according to market analyst Ajay Bagga.
Following the release of the RBI dividend, the yield on the 10-year government bond decreased to less than 7%. In the upcoming quarter, banks—especially public sector banks—will benefit from lower bond yields as they accumulate treasury.
As a result, the Nifty PSU Bank and Nifty Bank saw increases of 1.72 percent and 2.06 percent, respectively.
“We expect Nifty to reach new highs in the first week of June if the election outcome aligns with current market expectations,” stated Neeraj Chadawar, Head of Fundamental and Quantitative Research at Axis Securities.
With an investing horizon of 12 to 18 months, he advised investors to stay in the market, keep good liquidity (10%), take advantage of market falls, and progressively increase their holdings in high-quality companies with strong earnings visibility.
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