RBI responded to economic data; markets to remain range-bound: Analysts

The Reserve Bank of India (RBI) has responded to the economic data by cutting the repo rate by 25 basis points (bps) on Friday, said analysts. The markets, they suggest, were expecting some adjustment in rates in the backdrop of the latest GDP (gross domestic product) numbers at 8.2 per cent for the September 2025 quarter.

 

That said, analysts do not expect a runaway rally in the markets from here on as the US tariffs still remain an overhang. Corporate earnings growth in the quarters ahead, rupee trajectory coupled with stable geopolitical situation, they said, will be key in determining market sentiment from here on. 

 

The rate cut was not a bolt from the blue, said U R Bhat, co-founder & director, Alphaniti Fintech. The Indian markets, Bhat believes, have learnt to live with the new reality of higher import duty. Exporters are diversifying and finding alternate markets; and with the Russian president in India, the industry can find new markets for its produce via negotiated trade deals, he said.  

 

“Inflation is as low as it can get. Trade deal uncertainty with the US will continue for some time. The RBI wanted to convey the right signals as regards interest rates in the light of inflation. The US Fed, too, may not be too aggressive in cutting rates. The rate cut back home reflects the confidence RBI and the government have on the domestic economy. The markets will mostly remain range-bound in the short-to-medium term, with gains capped at around 2 – 3 per cent from the current levels,” Bhat said.

 

Growth estimates recast

 

Besides cutting interest rates by 25 bps, the RBI also revised its GDP growth forecast for fiscal 2025-26 (FY26) upward to 7.3 per cent from the current estimate of 6.8 per cent. That apart, the inflation projection for FY26 was also revised to 2 per cent from 2.6 per cent projected earlier.

 

The unanimous nature of the decision in cutting rates by 25 bps, said VK Vijayakumar, chief investment strategist at Geojit Investments, reflects the consensus in the monetary policy committee (MPC) that giving further boost to growth is a risk worth taking even in the context of depreciating rupee. 

 

“The projection of 7.3 per cent GDP growth for FY 26 is positive for the market. Banks will like the policy decision overall but are unlikely to respond very positively to the rate cut since their NIMs will come under pressure and they will face difficulties in mobilising deposits if deposit rates are lowered. Rate sensitives like autos and real estate stand to gain from the RBI cut,” Vijayakumar said. 

 

At the bourses, meanwhile, the BSE Sensex has rallied around 9 per cent thus far in calendar year 2025 (CY25). Mid-and small-cap indices, however, have been laggards with gains of 0.5 per cent and -7 per cent, respectively during this period, data shows.

 

The markets, said G Chokkalingam, founder and head of research at Equinomics Research, were expecting a rate cut, but it may not be sufficient to take the markets much higher from the current levels.

 

“The manufacturing sector needs more push and further cuts in rates to boost consumption. There are liquidity concerns, especially for stocks outside the Sensex and Nifty. That apart, rupee weakness is worrying, which will keep FII money from the Indian markets at bay. Though the large-caps may remain relatively stable, a significant upside is ruled out for now,” Chokkalingam said.