India’s central bank has sat on its hands for a year and a half now, but with China going all-in and foreign investors turning East, it might feel the heat.
Even the stars are aligned for a rate cut: inflation is under control and growth is slowing down. Yet more than 80% of economists polled by Reuters said the Reserve Bank of India is unlikely to move the needle on Wednesday.
Sigh.
Why should I care?
Foreign investors have pulled money from Indian stock markets in recent days to invest in China, where the central bank is doing everything it can to prop up markets.
That’s not all. Small and medium enterprises – the heart of the world’s fifth-largest economy – have been complaining about high borrowing costs.
To stay in business, small firms have to borrow money regardless of the interest rate, which means the difference comes out of their pocket or get passed onto customers. An interest rate cut would “help small businesses like us,” Venkat Vardhan, who runs a small video-production firm, told MONIIFY.
He is not alone, as the numbers show:
- India’s economic growth slowed to 6.7% in the second quarter from 8.2% a year earlier.
- Growth in indirect tax collections has slowed to 6.5% from around 10% on average.
- Car sales in September slumped to their lowest in nine months — a 9.26% decline for the year.
A jump in crude oil prices isn’t a good sign either, because India imports at least 80% of the fossil fuel it needs to power its economy.
Cut or hold?
If you think the RBI will cut rates, you could load up on stocks in the financial services, consumer goods, real estate and automobiles sectors. These tend to do well when borrowing costs fall. If picking stocks is not your thing, nvm! During the last three RBI easing cycles, here’s how the main Nifty 50 Index performed: +41% (2000-2004), +21% (2008-2010) and +11% (2015-2017).
If it’s a hold, state-backed companies and cash-rich giants like Reliance Industries or Tata Consultancy Services could be your best bets.
