Stock Market Sectors That May Benefit From The Repo Rate Cut After 5 Years

After maintaining rates stable for 5 years, the RBI today announced a rate cut of 25 basis points, which reversed the interest rate cycle. This decision to lower the repo rate by 25 basis points to 6.25% is a positive step. This was mostly expected following the announcement of steps that would boost liquidity in late January 25. The GDP growth estimate for FY25 has been lowered from 6.6% to 6.4%. GDP growth is predicted to remain steady at 6.7% for FY26. It is anticipated that inflation forecasts for FY26 will approach the central bank's tolerance level.

Rate-sensitive industries like private sector banks and NBFCs will become more appealing as the RBI begins a cycle of rate cuts. The cost of capital for NBFCs reduces when interest rates reduce, and a large portion of their lending is through fixed-rate loans; thus, NIMs grow, enhancing medium-term ROAs and ROEs.

RBI Rate Cut Cycle Boosts Banks, NBFCs & Discretionary Spending

With RBI starting a rate cut cycle, rate-sensitive sectors like private sector banks and NBFCs are going to become attractive. The cost of funding for NBFCs comes down with a decline in interest rates and a lot of the lending they do is via fixed-rate loans - as a result, NIMs expand thereby improving ROAs and ROEs in the medium term. Also, lower interest rates bring down EMIs thereby providing a boost to discretionary consumption sectors like retail, hotels and high-end consumer goods while also supporting large ticket purchases like Auto and housing, as per Mr. Krishna Killa, Founder, Ironclad Asset Management.

RBI Rate Cut Spurs Market Optimism, Boosts Banks & Investment Sentiment

The stock market is likely to respond substantially to this rate cut as the money supply will grow, which is going to affect the banking and NBFC sectors more. In addition to sector-specific impacts, the rate cut is likely to boost overall investment sentiment, attracting greater capital inflows and enhancing market confidence. With more money circulating in the economy, consumer spending is expected to rise, further bolstering business activity. However, the RBI remains vigilant regarding inflationary pressures and will closely monitor economic conditions, according to Swapnil Aggarwal, Director, VSRK Capital.

This change in policy is strategic in expanding the economy while ensuring financial stability. With the easing of borrowing costs, investment, household spending, and most importantly, business adaptation to changing economic directions are expected to improve. The policy decision reflects a commitment to achieving growth while maintaining macroeconomic stability, he further added.

RBI's Rate Cut to Boost Housing, Infrastructure, and Urban Expansion: Real Estate Sector In Focus?

The RBI's decision to cut the repo rate by 25 basis points is a pivotal move that aligns with the government's broader economic push. Lower interest rates, combined with fiscal incentives, will not only accelerate housing demand-particularly in the mid-income and affordable segments-but also catalyze infrastructure development and hospitality growth. With tier 2 and 3 cities witnessing unprecedented expansion, this policy shift will further fuel real estate momentum, making homeownership more accessible while driving commercial investments. As liquidity improves and borrowing costs ease, we anticipate a stronger uptick in both residential and mixed-use developments, reinforcing India's urbanization wave, stated Mr. N.K. Gupta, Chairman of Manglam Group.

Short-Term Funds to Benefit as RBI Kicks Off Rate Easing Cycle

"Some would say that this rate cut by MPC/RBI is premature, that Inflation is not under control yet. Monetary easing is the need of the hour, from a trying to revive the economy perspective. For monetary easing to be effective, more rate cuts are needed for a long period of time. Liquidity needs to be easy as well. I feel that the inflation projection of 4.2% for FY26 is a tad optimistic. I expect further rate cuts of 50 bps during the year. It is a bold move by RBI," said Mr. Sandeep Bagla, CEO, TRUST Mutual Fund.

The short-term funds are likely to perform better. The long end of the curve will move lower once the inflation battle is won, which is some time away. There is pressure on the currency as well, which will make interest rates volatile, though, within a range, he further stated.