New Delhi: Indian stock markets surged today with Sensex and Nifty rallying to new highs, boosted by the bank recapitalisation plan announced by the government. The government also announced massive infrastructure spending to boost growth. The Sensex surged over 500 points to hit new high of 33,117 while Nifty surged to record 10,340. Public sector banks led the rally in banking stocks. The index of public sector banks on the NSE, Nifty PSU Bank, surged nearly 20 per cent, with SBI rising 18 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 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." Tirthankar Patnaik, an economist with Mizuho Bank, said now that the government has taken cognisance of the capital problem, "we can now witness the banks starting to lend again".
The government also announced a massive Rs. 6.92 lakh crore infrastructure spending 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 on Tuesday reported a larger-than-expected quarterly profit but trimmed its revenue forecast for the year. Infosys had announced its earnings after market hours yesterday. 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 percent and 12.5 percent 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 i 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 Nifty traded at 10,260.