Jerome Powell crashed Wall Street’s Christmas bash –– and now Dalal Street is nursing the holiday blues too.
India’s Nifty 50 is on a four-day losing streak, with whispers growing louder that the Reserve Bank of India might skip a rate cut in February. If that plays out, it’ll mark a full two years since the RBI made any move on the rate since it was hiked to 6.5% in February 2023 –– about as exciting as watching paint dry.
Optimists were hoping that the new RBI governor Sanjay Malhotra, who started the job last week, would make a dramatic entrance with a rate cut, like two of the last four governors have done.
But with the Fed signaling it’s putting the brakes on easing, and India still wrestling with inflation, Malhotra has some solid excuses for holding back.
If he does, it’ll mark the longest wait for a rate cut since 2008. The last time the Indian central bank cut rates was during the pandemic in 2020.
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Rupee lows
The odds for a rate cut are looking slim, thanks to inflation and currency worries stealing the spotlight. India’s currency recently flirted with record lows of near 85 rupees to the dollar, and foreign investors have been taking their chips off the Indian table.
Sandeep Bagla, CEO of Trust Mutual Fund, points out that the Fed’s cautious vibe has dampened expectations around a cut in India too. Market pricing now pegs the policy rate at 6.6%, according to LSEG data, signaling rates could stay put.
Why the hesitation? The RBI has been on a mission to tuck inflation in for good. November’s inflation sat at around 5.5%, still higher than the RBI’s 4% target.
Throw in a hawkish Fed and potential global market drama, and suddenly financial stability trumps rate cuts, according to Madhavi Arora, lead economist at Emkay Global Financial Services.
And just to make things more complicated, India’s GDP growth hit 5.4% last quarter— its slowest rate since late 2022.
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Banking on financials
So, where’s the silver lining? Financial stocks and banks (think: Axis Bank, SBI, Bajaj Finance) might get their moment in the sun, Deepak Jasani, head of retail research at HDFC Securities, tells MONIIFY. Higher rates mean better loan margins.
Bagla also sees potential in premium consumption stocks and companies in the brokerage or asset-management space (Trent, United Spirits, Aditya Birla Sun Life). With many of these now listed in India, they could shine regardless of rate cuts.
For Indian investors, the mantra for 2025 might just be: keep calm and carry on. Rate cuts can wait.
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