Indian stocks hit record close on RBI dividend, short covering

India’s main equity benchmarks closed at a new all-time high on Thursday (May 23) after the central bank’s bumper dividend to the government and optimism about the outcome of the ongoing general elections energised bulls.

The NSE’s Nifty 50 Index rose 1.6 per cent to 22,967.65, while the S&P BSE Sensex was up by the same magnitude. A rally in state-owned firms provided a lift, with a BSE gauge of such stocks also notching up a record close. Adani Group shares rallied to add about US$7 billion in combined market value, with flagship Adani Enterprises surging 7.8 per cent.

Indian stocks have trailed their Asian peers this month amid concerns that Prime Minister Narendra Modi’s party may not secure a landslide victory it aims for in the polls, likely affecting its ability to carry out policy reforms. Foreigners have pulled US$3.6 billion from local shares so far in May, and raised their net short bets on index futures to multiyear highs earlier this month.

“The market is experiencing a short-covering rally, which appears to have further momentum,” said Santosh Meena, head of research at Swastika Investmart. The Reserve Bank of India’s record dividend “is akin to an indirect rate cut for the economy, as it is expected to lead to a reduction in bond yields,” he said.

The central bank will pay a US$25 billion dividend to the government, more than double what was budgeted, boosting fiscal revenues before a new administration takes office after votes are counted June 4. The bumper payout not only boosts federal finances but also signals strong confidence in the economy.

Sentiment also got a boost after Modi told The Economic Times that his party has already crossed the majority mark by winning 272 out of 543 seats in the lower house of parliament, putting him in a position to return to office for a third term. Modi had predicted the party and its allies to win more than 400 seats to ensure continuity of economic reforms. BLOOMBERG