RBI kicks off rate cut cycle after a 5-year lull; will this cause Nifty 50 to reclaim the 25K mark?

After nearly five years, the Reserve Bank of India (RBI) cut the benchmark repo rate by 25 basis points on Friday, February 7, signalling a coordinated effort with the government to revive India’s slowing economy. The RBI’s Monetary Policy Committee (MPC) cut the repo rate by 25 bps and kept the policy stance as ‘neutral’.

Experts hailed RBI’s decision and believe the policy move will support growth. 

“The RBI assured the market of durable liquidity and cut rates by 25 bps as inflation remains within the higher mandate range. The jugalbandi between monetary policy, which is becoming less tight, and fiscal policy, which is becoming less loose, should support growth and yet manage inflation,” said Nilesh Shah, Managing Director, Kotak Mahindra AMC.

Although the policy decision largely met expectations, Indian stock market benchmarks—the Sensex and Nifty 50—experienced significant volatility. The Sensex fluctuated by over 800 points, while the Nifty 50 swung between an intraday high of 23,694.50 and a low of 23,443.20 during the session.

Can the Nifty 50 reclaim the 25,000 mark?

The Nifty 50 has faced sustained selling pressure since reaching an all-time high of 26,277.35 on September 27 last year. As of the close of February 6, the index has fallen over 10 per cent from its peak.

The market is expected to recover after this sharp decline. The RBI’s rate cut, following a pro-growth, consumption-friendly Budget, serves as a major boost to investor sentiment.

However, it is too early to say that the Nifty 50 will reclaim the 25,000 mark soon due to concerns surrounding a global trade war and heavy foreign capital outflow from the Indian stock market.

US President Donald Trump has aggressively pushed forward his tariff plans against several countries. India, so far, has been spared, but attention is now on Prime Minister Narendra Modi’s meeting with the US President on February 13.

Stretched valuation of Indian markets, weak quarterly earnings, rising US dollar and bond yields, and fading expectations of rate cuts by the US Fed have been among the key factors driving foreign institutional investors (FIIs) away from the Indian market.

For the Indian market to stabilise, the FII selloff needs to recede.

“It is a bit difficult to say that the Nifty 50 will be able to reclaim the 25,000 mark after an RBI rate cut. Generally, rate cuts are positive for the NBFC and banking sectors. However, we have to see what the FII trend would be. For price performance to happen, the FII selloff needs to recede, which is not a very clear trend at the moment,” said Pankaj Pandey, the head of research at ICICI Securities.

A 25-basis-point rate cut could revive interest in rate-sensitive stocks. However, the rate-cut cycle could be shallow, and the central bank may focus on controlled liquidity infusion rather than aggressive easing.

Moreover, investors may stay cautious amid global uncertainty and a weakening domestic currency.

“The Reserve Bank of India’s decision to cut the repo rate by 25 basis points to 6.25 per cent reflects its focus on supporting economic growth amid moderating inflation. However, challenges such as the weakening rupee, which could increase import costs and external economic uncertainties remain key factors to monitor,” said Anirudh Garg, Partner and Fund Manager at Invasset PMS.

The market’s movement will be influenced by evolving growth-inflation dynamics, macroeconomic indicators, and geopolitical developments. With earnings recovering from Q4 onwards, experts expect the Indian market to stabilise after March.

Read all market-related news here

Read more stories by Nishant Kumar

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.