Budget 2021: Bank Nifty zooms 8%, ends at record high after FM announces infusion of Rs 20,000 cr into PSBs


Bank Nifty surged over 8 percent at close on February 1 and outperformed all other sectors after Finance Minister Nirmala Sitharaman said the government would infuse Rs 20,000 crore into public sector banks (PSBs) in 2021-22, to meet the regulatory norms.

For the current financial year also, the government had made a provision of Rs 20,000 crore for recapitalisation.

She proposed to divest two PSU banks and one general insurance company in FY22.

Banking stocks rallied after Finance Minister Nirmala Sitharaman has announced the setting up of an entity to address the stressed assets of banks. The organization will be set up through an Asset Reconstruction Company (ARC) model, she said in the 2021 Budget Speech. Details of the proposals are still awaited.

This institution, what is commonly known as ‘bad bank’, will be a major boost for bad asset resolution in the financial system and has been in discussions for long. Banks can transfer bad assets to this entity at a discount. Experts will then attempt for a resolution through a professional approach, while originating banks can focus on new business.

Bank Nifty index jumped over 2,000 points intraday led by IndusInd Bank which surged 13 percent while ICICI Bank which spiked 12 percent followed by State Bank of India which jumped 10 percent. HDFC Bank added 5 percent while Bank of Baroda and RBL Bank were the other gainers.

“Bank Nifty has been bucking the trend since last couple of sessions, while the broader market was correcting brutally. This outperformance has now turned into a leadership and hence, staying beyond 33,000, unfolds fresh leg of the rally for the banking index. Above this, next levels to watch would be 34,500 – 35,000,” said Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel Broking.

Vishal Kampani – Managing Director , JM Financial Group is of the view that the Union Budget 2021-22 has laid the roadmap for India to achieve sustainable growth in the years to come by delivering on key expectations. Walking the talk, the Centre has truly pushed for countercyclical fiscal policy through a higher-than-expected fiscal deficit of 6.8 percent in FY22 and 9.8 percent in FY21. A number of measures from higher infrastructure spend through the set-up of a DFI to key reforms in financial sector (including the disinvestment of 2 public sector banks) and increase in healthcare spend provide the all-important booster dose for revitalisation.

Particularly, the announcement to set up an Asset Reconstruction Company Limited and Asset Management Company for resolving stressed assets problem of PSBs is a step is in right direction. Absence of hike or introduction of new taxes for the consumer (barring the Agriculture and Infrastructure development cess) and investor is a breather. Overall, the budget is growth-oriented and execution of the announced reforms including the robust divestment/asset monetisation roadmap will be the key.

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