The Reserve Bank of India (RBI) is widely expected to raise the repo rate by 25 basis points (bps) to 5.50% on Wednesday, with market participants closely watching the central bank's inflation outlook and guidance on the future course of monetary policy.
Indian stock market today is likely to remain cautious ahead of the RBI's policy decision, while rate-sensitive stocks could witness heightened volatility.
The expected rate hike comes against the backdrop of domestic inflation remaining above the RBI's 4% target, while elevated crude oil prices pose an additional external risk. Higher crude prices could exert further pressure on India's inflation trajectory and widen the current account deficit.
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“A 25-basis-point rate increase is largely priced in, making the RBI's guidance on liquidity and the future rate path more important than the headline decision,” said Hariselvan Radhakrishnan, Founder & CEO of HST Wealth.
According to him, a measured, data-dependent stance could support banks and rate-sensitive sectors, while indications of a prolonged tightening cycle may reverse the recent recovery.
The Indian stock market benchmark indices, Sensex and Nifty 50, witnessed some recovery in the past two sessions after falling for eight consecutive weeks, marking the longest losing streak in 25 years.
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Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited said that a 25 bps rate hike appears inevitable in the context of rising inflationary expectations and the rising bond yields in most of the developed world.
“A rate hike is already discounted by the market and, therefore, the focus of the market participants would be on the policy stance and the RBI's estimates on growth and inflation,” Vijayakumar added.
From the investors' perspective, he noted that a rate hike would be beneficial for the banks whose margins will improve from rising floating rates.
“The strong deposit and credit growth in the economy indicate good prospects for the financial sector,” he said.
Along with the RBI's October policy, markets will see another major trigger this week which is the start of Q2 earnings season led by Tata Consultancy Services (TCS) on October 8.
Vinit Bolinjkar, Head of Research, Ventura expect continued volatility in the market this week, with the rupee, crude oil prices, and the RBI's rate stance as key swing factors.
“Rate-sensitive sectors — banks, auto, and realty — will be in sharp focus around the policy outcome, while IT stocks will trade on TCS's commentary around deal momentum and AI-led pricing pressure,” Bolinjkar said.
He believes select pockets like PSU banks, defense, and renewables may continue to see relative resilience.
“Overall, a stock-specific, news-driven market is likely, with broader direction hinging on how global bond yields and RBI's tone evolve through the week,” Bolinjkar added.
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