India shares surge as budget focuses on growth; bond yields rise

BENGALURU: India's blue-chip Nifty 50 index on Monday recorded its best performance on a federal budget day in over two decades after the finance minister announced a slew of measures to revive the pandemic-hit economy, while bond yields jumped sharply on the government's plans to raise more funds from the market.

The NSE Nifty 50 surged 4.7% to 14,281.2, while the S&P BSE Sensex jumped 5% to 48,600.61 after six sessions of losses in the run-up to the budget.

This marked the Nifty's best daily performance on a federal budget day since at least 1996, according to Refinitiv data.

Finance Minister Nirmala Sitharaman proposed doubling healthcare spending, a vehicle scrappage policy, recapitalisation of public-sector banks and divestment of some state-owned lenders, aiming to bolster an economy that plunged into its deepest recorded slump amid the virus outbreak.

"The budget has ticked the boxes on the growth side, with infra capex increase of around 34% on a year-on-year basis, which is a very healthy sign, a good roadmap on divestment and monetisation of assets of state owned enterprises," said Rupen Rajguru, head of equity investment and strategy, Julius Baer India.

The benchmark 10-year bond yield closed up 13 basis points at 6.08%, while the rupee weakened to 73.02 per dollar versus its previous close of 72.95, after Sitharaman said the government's fiscal deficit for the current fiscal year to March was likely to reach 9.5%, compared with the budget estimate of 3.5%, and that the government will borrow an additional 800 billion rupees from the market by end-March.

A "substantially higher-than-expected" expenditure pushed fiscal deficit for fiscal 2021 and 2022 well above projections, said Aditi Nayar, principal economist at rating agency ICRA, adding that yields were expected to sustain a hardening bias, in the absence of frequent open market operations.

Among stock sub-indexes, the Nifty Auto index climbed 4.2%, while the Nifty PSU Bank index, which tracks state-run lenders, jumped 7.8% after Sitharaman said India would set up an asset reconstruction company to take over toxic assets.

Gains in ICICI Bank and IndusInd Bank after quarterly earnings lifted the Nifty Bank index 8.3% to an all-time closing high.

India's economy is seen clocking robust growth of 11% for the coming fiscal year after likely contracting 7.7% in the current fiscal year to March 31, an annual economic survey showed on Friday.