RBI Policy Print, Pre-Budget Buying To Aid Market Till February, Says Ajay Bagga

Proactive measures by the Reserve Bank of India and a potential surge in buying driven by anticipation of the Budget could reverse the slow grinding correction in the Indian markets, according to market veteran Ajay Bagga.

India’s GDP growth slowed down to a seven-quarter low of 5.4% during the July-September quarter of FY25. 

On growth pressures in the country, Bagga told NDTV Profit the RBI as well as the government should have made some “countercyclical” moves to ease the situation.

“Some countercyclical measures could have been taken by the RBI on the monetary front and by the government by announcing big projects and releasing a lot of funding into the economy. Both have not happened. RBI instead chose to burn up $50 billion of forex reserves in protecting the rupee,” he said.

Bagga noted that the $37.8 billion trade deficit in November, which surged to an all-time high, was a consequence of the RBI's decision to prioritise protecting the Rupee.

“So you have bad liquidity in the banking system, very tight liquidity. You have a rupee which is stronger than its natural level. And you have a lack of fiscal or monetary impulses. That is the drawback for these markets,” he said.

However, the market veteran remained optimistic that the central bank would address these issues at the February Monetary Policy Committee (MPC) meeting.

Along with that, investors buying stocks in anticipation of Budget decisions due on Feb. 1 may help the markets go up, Bagga added 

“We are hoping that with the February RBI policy, some of that will be addressed and with the budget coming up, there will be some amount of buying. That's what will take these markets up,” he noted.

“So, slow grinding, otherwise, but with some policy impulses coming in, you could see the markets pick up again,” the analyst added.

Bagga said his “biggest bet” in the next two years in terms of investing was banks as he anticipated a “lot of growth” in their financials.

“I would say banks, you are going to see a lot of growth in financials. It's domestic, and the cycle works for them. Once the rate cuts come in, it will go up a bit, then start plateauing,” he said.

“If India is your trend, then consumption and domestic cyclicals become your biggest bet,” Bagga added.