The regulator has revised its growth forecast upwards for Q2 and FY26, while a marginal downward revision is seen in H2 FY26 onwards. However, inflationary pressures are expected to continue to ease in the near term.
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The RBI's decision to keep the repo rate unchanged was in line with our expectations. The recent GST rate rationalisation comes at an opportune time and is expected to support consumption demand during the festive season.
The regulator has revised its growth forecast upwards for Q2 and FY26, while a marginal downward revision is seen in H2 FY26 onwards. However, inflationary pressures are expected to continue to ease in the near term.
The pause in the current meeting leaves room for the RBI to opt for a 25bps rate cut in the forthcoming meeting, with growth buoyancy continuing and expectations of softening inflationary pressures.
For banks, Q2 is expected to be another soft quarter, with tepid growth, NIM pressures, weaker treasury performance sequentially and higher credit costs.
Banks are yet to see a meaningful recovery in credit growth, which is expected from H2 onwards. For banks, we expect NIMs to bottom out in Q2, so far. H2 margins should find support from deposit repricing and the CRR cut.
Banks are seeing green shoots in terms of asset quality metrics and expect better outcomes from H2 onwards. We believe valuations for most banks are comfortable, and clarity on pick-up in growth and improving asset quality metrics would warrant upside in banking stocks.
At present, we continue to prefer banks with promising growth prospects, healthy deposit franchises, stable asset quality metrics, and strong and steady management teams.
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