RBI Cuts Repo Rate to 5.25%: Boost for Rate-Sensitive Sectors and Markets

The RBI caught markets off guard by lowering the repo rate by 25 basis points to 5.25% during its latest MPC meeting. The move comes against the backdrop of record-low inflation at 2.2% and strong GDP growth in H1, offering a boost to rate-sensitive sectors such as banking, real estate, and automobiles.

Market Performance: Stocks React Positively

Following the RBI’s announcement, Indian markets gained momentum after opening on a flat note.

• Sensex rose 257.68 points (0.3%) to 85,522.97.
• Nifty 50 gained 80 points (0.3%) to 26,113.85.
• Broader indices, including midcap and smallcap stocks, underperformed slightly, dropping 0.5% and 0.9%, respectively.

Rate-sensitive sectors, particularly banks, real estate, and automobiles, responded strongly to the policy shift.

Key Highlights of RBI Monetary Policy

• Repo rate cut: 5.50% → 5.25%
• Inflation: 2.2% (record low)
• FY26 GDP growth estimate: 7.3% (up from 6.8%)
• CPI inflation forecast for FY26: 2% (down from 2.6%)
• MPC stance: Neutral

The decision reflects a rare “Goldilocks” phase of low inflation and strong growth, providing policy room to support the economy.

Sectoral Performance: Banks, Auto, and Realty Lead

Banking & Financial Services

The Nifty Bank index rebounded sharply, with most stocks trading higher:

• Punjab National Bank: +1%
• AU Small Finance Bank, IDFC First Bank, SBI, Canara Bank: +0.5% each
• Nifty PSU Bank: +1.2%
• Nifty Private Bank: +0.7%

In the financial services segment, top performers included SBI Cards, Bajaj Finance, Shriram Finance (+2% each), followed by Bajaj Finserv and SBI Life (+1%+). Some stocks, including HDFC AMC, LIC Housing, REC, and HDFC Life, saw minor declines of 0.5–1%.

Auto Sector

The auto sector showed mixed but overall positive movement:

• Maruti Suzuki, Eicher: +1%
• Bosch, Mahindra & Mahindra, TVS Motor: +0.5%
• Apollo Tyres: -1%
• Exide, Balkrishna, Tata Motors: -0.5%+

Realty Sector

The realty segment benefited from expectations of easier financing:

• Prestige Estates: +1.5%
• Signature Global, Oberoi Realty: +1%+
• DLF, Lodha: +0.5%+
• Some stocks, including Anant Raj, Brigade, and Phoenix, declined over 1%.

The rate cut provides a favorable environment for real estate, supporting homebuyer confidence and potential growth in demand.

Summary: Broader Implications

The RBI’s repo rate cut signals a supportive monetary policy amid low inflation and strong growth. Rate-sensitive sectors such as banking, financial services, automobiles, and realty saw immediate benefits in stock performance.

• Banks: Rebound in Nifty Bank and PSU/Private bank indices.
• Auto: Selective gains in major manufacturers.
• Realty: Realty stocks gain, reflecting improved financing conditions.
• Markets: Sensex and Nifty 50 show modest gains; midcap and smallcap stocks lag slightly.

The neutral stance ensures continuity and stability, providing a balanced environment for markets to adjust while supporting growth in sensitive sectors.