Indian stock markets surged today with the Sensex and Nifty rallying to new highs, boosted by the bank recapitalisation plan announced by the government. The government also announced a massive infrastructure spending to boost growth. The Sensex surged over 500 points to hit a new high of 33,117 while the Nifty surged to a record 10,340. Public sector banks led the rally in banking stocks, with State Bank of India (SBI) surging 20 per cent and Punjab National Bank (PNB) jumping 33 per cent.
The government on Tuesday announced a Rs 2.11 lakh crore recapitalisation plan for public sector banks over two years to boost their finances, private investment and help revive the economy. As part of this plan, the government will infuse Rs 1.35 lakh crore through recapitalisation bonds and Rs 76,000 crore through budgetary support and market-raising.
Apart from helping the public sector lenders meet stricter capitalisation norms, the additional capital will also help increase credit supply to the economy. 21 state-run banks account for more than two-thirds of India's banking assets. But they also account for a bulk of the record Rs 9.5 lakh crore of soured loans.
Welcoming the government's announcement, IMF's senior resident representative, Andreas Bauer, said: "We have a long view that more resources are needed for recapitalisation and from that sense, the plans put out is a positive step."
Global credit rating agencies Fitch and Moody's lauded the government’s bank recapitalisation plan.
"The proposed infusion is a sizable jump over what had been pledged before as India is seeking to plug a large part of the core equity gap at the state-run banks," said Jobin Jacob, a Mumbai-based associate director at Fitch Ratings Ltd.
Moody's Investors Service analyst Srikanth Vadlamani said the move is a "significant credit positive" for the state-run banks. The amount of capital pledged is enough to address the lenders' solvency challenges and recapitalise them adequately, said Mr Vadlamani, who is vice president of the financial institutions group at the unit of Moody's Corp.
The government also announced infrastructure spending of Rs 6.92 lakh crore in building 83,677 km of road over the next five years. Infrastructure companies L&T and IRB Infra rose over 2 per cent.
Software services company Infosys reported a larger-than-expected quarterly profit but trimmed its revenue forecast for the year. Infosys had announced its earnings after market hours on Tuesday. Another frontline IT company HCL Tech announced its earnings before the market opening today. The company maintained its full-year revenue guidance for a growth between 10.5 per cent and 12.5 per cent in constant currency terms. Both HCL Tech and Infosys shares were flat today.
The strength in global markets also lifted the optimism in domestic equities. The Dow rallied overnight, registering its biggest daily percentage gain in more than a month, as stronger-than-expected results and forecasts from some companies fuelled optimism about economic strength. Asian shares were mostly flat today.
Indian stocks markets have rallied nearly 25 per cent so far this year, boosted by optimism recovery in economic growth, strong domestic inflows into stock markets and a global rally.
At 9:45 am, the Sensex pared some of its early gains and was up 270 points while the Nifty traded at 10,260.
