BSE Building new
BSE Building newReuters file

The benchmark indices rebounded strongly Tuesday after the government kept its fiscal deficit target unchanged for 2016-17, paving way for lending rate cuts by the Reserve Bank of India (RBI) in the coming months.

While the BSE Sensex index surged 777 points to close at 23,779 points, the 50-share Nifty rose 235 points to end at 7,222 points.

Contrary to the expectations of easing the fiscal deficit target to boost spending, Finance Minister Arun Jaitley, in his third budget Monday, kept it unchanged at 3.5 percent for the next fiscal year.

Most of the analysts had expected the finance minister to announce a higher fiscal deficit target amid slowing economic growth.

"There were apprehensions that government would not stick to the path of fiscal consolidation and would tinker with long term capital gains tax and both the things did not came which is positive for the markets in the near term," Nilesh Shah of Envision Capital Services, told NDTV Profit.

The status quo on the fiscal consolidation path will enable the RBI to cut interest rates in the coming months, which could be positive for the corporate sector.

Earlier this month, global brokerage firm Nomura had said that the RBI is expected to cut the repo rate by 25 bps at its policy meeting in April, after the announcement of the Union Budget.

On the BSE sectoral front, Auto, Banks, IT and FMCG were the top gainers. Banking shares witnessed heavy buying, supported by RBI rate cut hopes.

While ICICI Bank shares rose 8 percent to trade at Rs 205, Axis Bank shares gained 4.5 percent to Rs 391. 

IDBI Bank was up 1.8 percent, posting gains for the second consecutive session after Jaitley hinted at selling stake in the bank, while presenting the budget on Feb. 29. 

Stock price of ITC climbed about 10 percent to Rs 325 despite a rise in excise duty on cigarettes. The excise duty increase was the lowest in the past five years.