RBI Policy Meet Kicks Off: Rate Cut Buzz Sparks Market Excitement Around Select Stocks

The Reserve Bank of India (RBI) has kicked off its three-day Monetary Policy Committee (MPC) meeting starting today, and investor attention is focused squarely on one key question—will the central bank cut interest rates again?

With inflation easing and growth showing signs of fatigue, financial markets are increasingly pricing in a possible 25 to 50 basis points (bps) cut in the repo rate, which currently stands at 6%. If this happens, it would mark the third consecutive rate cut by the RBI, strengthening investor sentiment and potentially setting off a stock market rally, especially in rate-sensitive sectors.

Why a Rate Cut Looks Likely

According to Anil Rego, Founder and Fund Manager at Right Horizons PMS, a 25 bps cut to 5.75% is probable, driven by two main factors:

• Headline CPI inflation is now below the RBI’s 4% target, giving the central bank more leeway.

• Growth data has been soft, and global trade headwinds are expected to continue into 2025.

Rego also pointed out that banks are already trimming interest rates, with savings account returns dropping to 2.70% and fixed deposit rates falling by 30–70 bps since February 2025.

“Liquidity and financial stability risks are low, and inflation should remain within target. This gives the RBI room to reduce rates without upsetting macroeconomic stability,” he said.

Sectors Likely to Gain from a Rate Cut

Lower interest rates directly impact sectors that rely heavily on borrowed capital or consumer lending. As borrowing becomes cheaper, these sectors often see increased activity and investor interest.

Rego highlighted three primary beneficiaries:

1. Banking – Stronger credit demand may help public and private banks improve lending volumes.

2. Real Estate – Lower home loan rates make buying property more affordable, boosting residential and commercial sales.

3. Automobiles – Reduced EMIs could trigger higher car and two-wheeler sales, especially in mass and mid-segment categories.

“A cut in the repo rate sends a clear pro-growth signal. Domestic consumption and credit expansion could drive these sectors up,” Rego added.

Boost for Manufacturing and Capex-Heavy Sectors

Divam Sharma, Founder and Fund Manager at Green Portfolio PMS, said the rate cut could play a catalytic role in boosting private investment, especially in capital-intensive sectors.

He expects greater investor focus on sectors that are preparing for large-scale capacity additions and infrastructure upgrades, such as:

• 5G equipment manufacturing

• Defence production

• Automotive components and EV infrastructure

“When borrowing becomes cheaper, companies with aggressive capex plans are able to push ahead. Rate cuts ease working capital stress and stimulate industrial momentum,” Sharma explained.

Stocks That Could Benefit from a Rate Cut

VLA Ambala, SEBI Registered Research Analyst and Co-Founder of Stock Market Today, identified a group of rate-sensitive stocks that could rally if the MPC announces a rate cut during this session.

She listed the following stocks as potential beneficiaries:

• State Bank of India (SBI) – India's largest bank could see improved loan growth and net interest income.

• Bank of India – Another PSU lender that may benefit from increased retail and corporate borrowing.

• Muthoot Finance – A leading NBFC offering gold loans, poised to gain from improved consumer sentiment.

• Godrej Properties – A major real estate player that could ride a housing demand revival.

• Exide Industries – A leading battery manufacturer set to benefit from higher auto sales and manufacturing activity.

• Ideaforge Technology – A drone-tech firm that could benefit from government capex and R&D funding.

• Gandhi Special Tubes – A capital goods stock aligned with manufacturing revival.

• Rama Steel Tubes – A key player in infrastructure and industrial construction.

“If the RBI cuts rates, it could trigger broad-based rallies across NBFCs, real estate developers, auto parts suppliers, and banking stocks,” Ambala stated.

Broader Economic and Market Implications

A repo rate cut typically improves liquidity and reduces the cost of capital, helping both consumers and corporations. The implications of a rate cut extend beyond just individual stocks:

• MSME and startup credit becomes more affordable.

• Consumer durables and discretionary spending receive a boost.

• Bond yields may soften, prompting foreign fund inflows into equity markets.

Economists warn, however, that a rate cut must be balanced with vigilance on commodity price inflation, oil prices, and global financial stability, especially with central banks in the US and Europe following a different interest rate trajectory

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