The Reserve Bank of India (RBI) is set to hold its Monetary Policy Committee (MPC) meeting from December 3-5. While
analysts remain divergent on their views of whether the Indian central bank will cut rates this time or not, market
experts have estimated what the impact might be on Indian stock markets.
Earlier during its previous meeting, RBI decided to keep the benchmark repo rate unchanged at 5.5 percent on October 1
for the second time in a row. RBI’s MPC cut rates by a total 100 basis points in the first half of 2025, but maintained
After RBI Governor Sanjay Malhotra announced MPC’s decision on October 1, markets closed in the green. Sensex gained
more than 700 points (around 0.9 percent) to close at 80,983.31, while Nifty 50 ended the session 225 points higher
(over 0.9 percent) at 24,836 on October 1.
RBI rate cut expectations:
Earlier in November, Reserve Bank of India (RBI) Governor Sanjay Malhotra said there is scope to further reduce policy
interest rates. "At the last MPC meeting in October, it was communicated clearly there is room to cut policy rates.
Since then, the macro-economic data we have received has not indicated that the room to lower rates has decreased," he
said during an interview with Zee Business.
“There is certainly room (to lower rates) but whether the MPC takes a call on that in the coming meeting or not, depends
on the committee,” he added, spurring rate cut hopes briefly. Analysts began to anticipate a 25-basis point rate cut
following the Governor’s comments.
The RBI was expected to cut rates by 25 basis points to 5.25 percent on December 5, according to a Reuters poll.
However, government data later showed that Indian economy grew at a six-quarter high of 8.2 percent in Q2 FY26, thus
beating estimates. This was helped by robust manufacturing and a buoyant services sector, especially financial, real
estate and professional services.
The strong GDP growth has reduced rate cut hopes slightly. Anirudh Garg, Partner and Fund Manager at INVasset PMS, noted
that a strong GDP print reduces pressure on monetary policy to accelerate easing.
The MPC faces a challenging act at the December rate review, with the mix of a strong growth print and record low
inflation, said Radhika Rao, Executive Director and Senior Economist at DBS Bank. “We expect an emphasis on forward
looking growth guidance and high real rate buffer due to weak inflation, to justify a move to lower rates further,” she
Let’s take different scenarios of RBI's MPC decision and how markets can react to each of them:
What if RBI delivers a rate cut:
If the RBI decides to cut rates in the upcoming MPC meeting, it would act as a strong short-term catalyst for Indian
equities, Garg said. "A rate cut reduces borrowing costs for corporates and consumers alike, stimulating credit growth,
improving earnings visibility, and boosting liquidity in the system. Historically, such easing phases have led to
renewed risk appetite among investors, particularly benefiting rate-sensitive sectors like real estate, autos, and
Garg noted that the impact will specifically be positive for banking stocks, as loan demand rises as credit becomes
cheaper, leading to stronger balance-sheet growth. “However, banks could see marginal compression in net interest
margins (NIMs) if lending rates adjust faster than deposit costs. Despite that, in an environment of stable asset
quality and robust loan growth, the impact on profitability tends to be limited, and valuations remain well-supported,”
Siddharth Maurya, Founder & Managing Director at Vibhavangal Anukulakara, said that a rate cut by the RBI could usher in
a fresh leg of upside for Indian equities, as cheaper credit, stronger corporate margins, and renewed investor appetite
drive the markets higher.
Ravi Singh, Chief Research Officer at Master Capital Services, said that a 25 basis points cut would align well with the
government’s broader economic agenda and would complement other positives initiatives like GST rationalisation, capital
expenditure, and ongoing incentive-led domestic manufacturing.
“Such a move should lift positive sentiment across rate-sensitive sectors while giving a push to overall economic
activity, making it a favourable outcome for equity markets,” he said.
A surprise 50 bps cut meanwhile would be interpreted as an aggressive push by the RBI to energise domestic demand and
overall activity, potentially triggering a strong rally in equity market, the analyst said. “Ultimately, the market’s
reaction will not just hinge on the RBI action but, also on the tone and forward guidance accompanying the decision,” he
A rate cut by the RBI would likely be read as a strong pro-growth signal, especially coming on the back of robust GDP
numbers and sharply softer inflation, said Anil Rego, Founder and Fund Manager at Right Horizons. "A reduction in
borrowing costs typically boosts risk appetite, and markets could respond with a broad-based rally led by rate-sensitive
sectors such as banking, autos, real estate and consumer durables," he said.
"Lower yields would make equities relatively more attractive, potentially triggering renewed FPI inflows after months of
cautious foreign positioning. A shift toward easier policy would also ease financial conditions for corporates, support
credit growth and strengthen expectations of an extended domestic capex cycle. With liquidity improving and confidence
rising in India’s medium-term growth path, markets may treat a rate cut as validation that the RBI is comfortable
nurturing the next leg of the economic expansion," he added.
"If the RBI delivers a 25–50 bps rate cut, markets should respond positively as lower borrowing costs support credit
demand and improve earnings visibility. A 25 bps cut would offer a mild boost, while a 50 bps move would act as a
stronger catalyst for cyclicals and broader equities. For banks, cuts may temporarily compress margins, especially for
PSU lenders, but stronger loan growth and fee income typically offset this," said Ajit Mishra – SVP, Research, Religare
"If the MPC is proactive and increases the rate, it will help signal growth focus and also help reduce the cost of
funding, which is a positive given that private spending is picking up," said Shravan Shetty, Managing Director, Primus
Partners. "Any rate drop will also help banks as they navigate the margin squeeze. This, together with other liquidity
measures, will help banks fund capex growth and improve margins," he added.
InCred Money Team said that a rate cut ould trigger a short-term rally, as lower borrowing costs usually boost consumer
spending and lift overall demand across the economy.
Markets are unlikely to react negatively in case the Indian central bank decided to hold rates this time, Garg said. He
noted that a pause would signal confidence in the growth trajectory and help banks maintain healthy spreads. “Overall,
either scenario points to continued market resilience — with a rate cut offering a short-term boost and a hold ensuring
Anil Rego also noted that markets are unlikely to interpret a no-rate cut decision negatively, as policy continuity
could be seen as a sign of prudence rather than hesitation. "A pause would signal the central bank’s intent to assess
the impact of previous easing and ensure inflation remains firmly anchored before committing to further action. In this
scenario, equities may trade in a narrow range but remain supported by strong GDP data, resilient earnings and improving
domestic flows," he said.
Singh meanwhile said that if the RBI decides to hold rate and delay rate cut, markets will largely read it as the
central bank’s attempt to assess incoming data more carefully, which will still be viewed as a responsible,
“In case of a hold by the MPC, consolidation with pockets of opportunity could be expected with high-quality companies
with stable cash flows attracting premium valuation and speculation-driven stocks underperforming. In short, rate cuts
trigger a broad rally while a hold would make markets selective,” said Maurya.
"If the RBI holds rates, the market may view it as a signal of caution, resulting in a more muted reaction. Banking
stocks would see stable margins but slightly softer growth expectations until clearer guidance emerges," said Ajit
Mishra from Religare Broking.
"If the RBI does hold rates, investors are unlikely to view it negatively. On the contrary, such a decision would
probably be seen as a prudent balancing act, acknowledging strong growth while guarding against inflation upside. In
that scenario, markets will likely shift their focus from the near-term rate decision to the broader trajectory: when
the rate-cut cycle might actually begin, and how quickly those cuts feed through to banks, businesses, and borrowers,"
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