The Indian stock market saw a notable rally on Wednesday, May 14, 2025, as key shares in the real estate sector experienced significant growth, driven by expectations of a potential rate cut by the Reserve Bank of India (RBI). The stock prices of Raymond, DLF, Prestige Estates Projects, and several others rose sharply in the wake of favorable inflation data. These movements are largely attributed to the recent Consumer Price Index (CPI) report, which revealed that retail inflation in India eased to a near six-year low of 3.16% in April, providing space for the RBI's Monetary Policy Committee (MPC) to act.

Market Reaction to CPI Inflation

The CPI inflation figures for April were significantly lower than the previous month's reading of 3.34% and far below last year’s 4.83%. Retail inflation's sharp decline was primarily attributed to lower prices in the food basket, including vegetables, fruits, pulses, and protein-rich items. This easing of inflation not only improves the purchasing power of consumers but also signals to the RBI that there is room for a rate cut without sparking runaway inflation. Experts suggest that this could trigger further rate cuts, with some forecasting a 25 basis point cut in June 2025 and potentially more in the latter part of the year.

Positive Sentiment in the Realty Sector

The positive sentiment in the market was particularly evident in the Nifty Realty Index, which rose over 2% intraday. Raymond, a key player in the sector, was among the top gainers, appreciating by 5%. The rise in Raymond’s stock was also attributed to the company’s decision to go ex-date for the demerger of Raymond Realty, which is seen as a significant step forward for the company's restructuring and future growth. The record date for the demerger was set for May 14, 2025, which helped rally investor interest in the stock.

Additionally, shares of Prestige Estates Projects and Macrotech Developers rose by up to 4%, while Oberoi Realty and DLF gained 1.65% and 1.5%, respectively. This uptick in the stock prices of realty companies is seen as a reaction to the potential for lower borrowing costs, which would encourage more property investments and development activities.

Experts Predict Further Rate Cuts

The reduction in CPI inflation has created optimism in the Indian market, particularly among rate-sensitive stocks like those in the real estate and infrastructure sectors. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, commented that the sharp dip in April's CPI leaves the RBI with enough flexibility to cut rates multiple times in the current cycle. According to his analysis, this is a strong tailwind for the Indian market, benefiting both the broader market and rate-sensitive sectors like real estate.

Further bolstering these expectations, Sakshi Gupta, Principal Economist at HDFC Bank, predicted a 25 basis point rate cut in June by the RBI, with additional cuts anticipated as the year progresses. Aditi Gupta, an economist at Bank of Baroda, agreed with this forecast, stating that inflation is under control and the RBI’s focus will shift towards fostering growth. This environment of easing interest rates is likely to fuel investor interest in stocks tied to growth, particularly in the real estate sector.

Conclusion

The recent inflation data has set the stage for a favorable environment for Indian stocks, particularly in the real estate sector. Rate-sensitive stocks such as Raymond, DLF, Prestige Estates, and others are likely to see continued investor interest as expectations of an RBI rate cut gain traction. With analysts predicting further rate cuts in 2025, these stocks could see sustained growth, contributing to the positive sentiment in the market.

As inflation remains low, the RBI’s policy shift could act as a catalyst for further growth, especially in sectors like real estate that directly benefit from lower borrowing costs. Investors are advised to closely monitor RBI’s next monetary policy meeting in June 2025, as it will likely influence the trajectory of key stock prices in the coming months.

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