Daily Voice: RBI rate hike in December cannot be ruled out, says Nine Rivers Capital founder

Market Mastery

Webinar by Vishal Malkan

Find the weak links

in your portfolio by Vishal Malkan

Following the latest CPI inflation data, Sandeep Daga, Founder and Chief Investment Officer of Nine Rivers Capital, said a rate hike by the Reserve Bank of India (RBI) in December cannot be entirely ruled out.

"My assessment is that falling crude reduces the probability of aggressive monetary tightening, but sustained moderation in food and core inflation is essential before the RBI turns more accommodative," he said in an interview with Moneycontrol.

Turning to the US Federal Reserve, Daga said a 25-basis-point rate hike at its December policy meeting appears increasingly likely, given persistent inflation, resilient economic activity and a relatively strong labour market in the US.

Recent economic surveys and interest-rate futures also point to a significant probability of such a move, he added.

Will Indian equities attract substantial foreign inflows going ahead? Could FY27 eventually end with net positive FII flows?

Yes, the outlook for FII flows is improving, supported by attractive valuations, India's relative growth prospects, moderating crude prices and improving earnings visibility. November has already witnessed a sharp reversal in foreign flows, indicating renewed investor interest.

However, cumulative FY27 flows still remain negative. A positive full-year figure is possible, but will require sustained buying over the coming months. INR-USD, US bond yields and relative valuations will remain key determinants.

Can the Nifty 50 surpass its previous record high sooner rather than later, especially with easing oil prices?

Yes, a retest of the previous high of around 26,373 looks achievable in the coming months. Nifty is now within approximately 5 percent of that level. Lower crude prices, renewed FII buying and improving earnings expectations provide a favourable backdrop.

However, after the sharp November recovery, some consolidation can be expected before a further rise. A sustainable breakout will require earnings upgrades and broader market participation rather than merely liquidity-driven valuation expansion.

Are falling crude oil prices the only catalyst behind the market rally, and will they continue to drive the uptrend?

No. Lower crude prices help immensely in lowering import inflation and managing current account deficit. However, the rally also reflects renewed FII inflows, improving September-quarter earnings, resilient domestic institutional participation and better consumption prospects.

Going forward, lower crude will remain supportive, but the sustainability of the rally will increasingly depend on earnings growth, domestic demand and global liquidity conditions.

Will declining crude oil prices ease inflationary pressures and reduce the likelihood of an RBI rate hike?

Lower crude prices should ease imported inflation, transportation costs and input costs, providing greater flexibility to the RBI. However, the latest October CPI inflation at 6.09 percent is above the RBI's 6 percent upper tolerance limit, with food inflation remaining a concern.

Therefore, a rate hike cannot be entirely ruled out. My assessment is that falling crude reduces the probability of aggressive monetary tightening, but sustained moderation in food and core inflation is essential before the RBI turns more accommodative.

Do banking stocks still look attractive after their recent rally of nearly 15 percent from October lows?

Yes, banking remains attractive from a medium-term perspective, supported by healthy asset quality, credit growth and improving profitability. However, the recent rally has priced in some of the anticipated earnings recovery.

Deposit mobilisation challenges, potential NIM compression and valuations warrant caution. I would favour banks with strong deposit franchises, healthy CASA ratios, superior asset quality and sustainable ROAs.

Is the US Federal Reserve likely to announce a 25-basis-point hike in December?

A 25-basis-point hike appears increasingly likely, given persistent US inflation, resilient economic activity and a relatively strong labour market. Recent economic surveys and interest-rate futures indicate a significant probability of such a move. For India, this could mean strengthening of dollar and pressure on rupee leading to moderation of FPI appetite.

However, the more important consideration will be the Fed's forward guidance. If December marks the final hike of the cycle, the impact on emerging markets may be minimal.

What is your assessment of September-quarter earnings? Do you expect H2 FY27 to deliver much better earnings growth than H1?

September-quarter earnings have been encouraging, with multiple brokerages reporting Nifty earnings growth in the 20–25 percent range and improving earnings breadth. Banking, metals, energy and industrials have contributed meaningfully.

H2 should benefit from festive consumption, GST-led demand improvement, infrastructure spending and operating leverage. However, I would avoid extrapolating Q2 growth rates across the economy. A more sustainable expectation is mid-to-high teens earnings growth, accompanied by further upward revisions in select sectors.