RBI cuts repo rate after 5 years. Experts turn bullish on these stocks, sectors & assets

RBI Monetary Policy: In line with market expectations, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) cut the repo rate by 25 basis points (bps) to 6.25 per cent, marking the first rate reduction in nearly five years. The monetary stance remains “neutral.” Consequently, the Standing Deposit Facility (SDF) rate is set at 6 per cent, while the Marginal Standing Facility (MSF) rate and the Bank Rate are at 6.50 per cent.

“The MPC decided unanimously to reduce the policy repo rate by 25 basis points from 6.50 per cent to 6.25 per cent. The MPC also decided unanimously to continue with the neutral stance and remain unambiguously focused on a durable alignment of inflation with the target while supporting growth,” the RBI Governor said.

The central bank last reduced the repo rate in May 2020, when it cut rates by 40 basis points to 4 per cent to mitigate the economic impact of the pandemic. This latest rate cut follows recent economic indicators and global challenges that have weighed on domestic growth prospects. RBI has projected real GDP growth for FY26 at 6.7 per cent it remains watchful of global headwinds.

Market Reaction: Volatility Prevails

Following the policy announcement, Indian equity markets witnessed volatility. The BSE Sensex dropped 328 points, or 0.4 per cent, to touch an intraday low of 77,730.37, while the Nifty 50 declined by 110 points, or 0.4 per cent, to 23,493.60. Broader market indices underperformed, with midcap stocks falling by 0.6 per cent and smallcap stocks declining by 1 per cent.

Analysts highlighted that while rate-sensitive sectors may benefit in the medium term, market sentiment remains cautious due to external uncertainties, including global trade tensions and inflationary risks.

Investment Strategy Post RBI Rate Cut

– Banks, auto, real estate sectors to gain most

Experts suggest that the rate cut could positively impact rate-sensitive sectors such as banking, auto, and real estate. 

Anil Rego, Founder and Fund Manager at Right Horizons, noted that NBFCs are well-positioned to benefit from the rate cut as credit growth improves. “Credit-sensitive sectors like auto and real estate will see higher demand,” he added.

Vinit Bolinjkar, Head of Research at Ventura Securities also stated, “The rate cut, coupled with recent liquidity-boosting measures, is expected to drive fresh investments and kick-start the consumption cycle. Sectors such as banking, auto, FMCG, consumer durables, manufacturing, and NBFCs are all poised to benefit.”

Analysts believe that with the government cutting taxes for the middle class and now RBI bringing down the cost of borrowing, it augurs well for strong consumption-led growth. 

Against this backdrop, Deepak Ramaraju, Senior Fund Manager, Shriram AMC believes discretionary spending and premiumisation themes are expected to outperform. 

“Sectors like automotive, real estate, and discretionary segments such as jewellery, durables and white goods might do relatively better. Travel and tourism, quick service restaurants could also see the demand remaining buoyant,” he added.

– Financials stocks to buy

Naveen Kulkarni, Chief Investment Officer at Axis Securities PMS, pointed out that the credit growth momentum in banks has slowed due to asset quality concerns, particularly in unsecured lending. 

“The rate cut is a positive for lenders with a higher share of fixed-rate portfolios, such as credit card issuers, vehicle financiers, and gold financiers. However, banks with a higher proportion of floating-rate loans may face near-term headwinds on margins,” he explained. 

Kulkarni identified Bajaj Finance, Cholamandalam Investment & Finance, and Shriram Finance as key beneficiaries of the rate-cut cycle.

– Existing bonds, debt MFs turn attractive

Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS, highlighted the impact on the bond market, where falling interest rates have led to a drop in the 10-year benchmark bond yield by 20 basis points, making existing bonds more valuable.

Sonam Srivastava, Founder and Fund Manager at Wright Research PMS also stated that on the bond market front, the decline in interest rates is expected to push yields lower, making long-duration bonds and debt mutual funds more attractive. Lower borrowing costs could also aid capital expenditure in sectors like infrastructure and manufacturing, supporting overall economic activity, she added.

– Alternative assets like crypto to become lucrative

Sumit Gupta, co-founder, CoinDCX stated that the RBI’s strategic 25 bps repo rate cut signals a calculated shift towards stimulating economic activity, fostering liquidity, and boosting investor confidence.

“From a capital markets perspective, this rate reduction serves as a catalyst for investor confidence, creating a favourable environment for increased capital flows across various asset classes. In a scenario where high interest rates often deter investment in alternative assets, the lowering of rates encourages a search for alternative avenues of growth. As traditional means like fixed deposits become less attractive, investors are more likely to turn to diversified options such as crypto assets, which, with the advent of FIU-compliant exchanges, offer a secure opportunity for portfolio diversification,” said Gupta.

In this evolving landscape, crypto investment is poised to play a significant role as investors seek to balance risk and return in a low-interest-rate economy, Gupta added.

Overall, the RBI’s rate cut, the first in five years, is expected to provide much-needed relief to borrowers and stimulate economic activity. However, the sustainability of this easing cycle depends on future inflation trends and fiscal policies. While rate-sensitive sectors like banking, real estate, and auto stand to benefit, market participants remain cautious about external risks, including global trade uncertainties and inflationary pressures.

For investors, the focus should be on companies poised to benefit from lower borrowing costs and credit expansion. While equity markets may experience short-term fluctuations, a strategic approach to investments in rate-sensitive sectors could yield positive long-term results.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.