RBI MPC Policy Decision Today: Rate-sensitive stocks in focus as investors await repo rate call

Investors will closely watch banks, financial services, auto and real estate stocks. These sectors usually react quickly to changes in interest rates and the RBI's policy signals.

The Nifty Bank, Nifty Financial Services, Nifty Auto and Nifty Realty indices will be closely monitored by investors.

Economists and market participants widely expect the RBI to raise the repo rate by 25 basis points (bps) in the October policy review.

According to a Zee Business poll, all respondents expect a 25 bps hike, while none expect a 50 bps increase or no change in rates.

A 25 bps hike would take the repo rate to 5.50 per cent from the current 5.25 per cent.

Such a move would mark the first rate hike since February 2023, when the MPC raised the repo rate by 25 bps to 6.50 per cent.

The RBI had subsequently kept the repo rate unchanged at 6.50 per cent for an extended period before beginning its rate-cut cycle in 2025.

At its August 3-5 meeting, the MPC unanimously decided to keep the repo rate unchanged at 5.25 per cent and retained its neutral policy stance.

Other key policy rates were also left unchanged. The Standing Deposit Facility (SDF) remained at 5.00 per cent, while the Marginal Standing Facility (MSF) and Bank Rate stood at 5.50 per cent each.

The August meeting was the fourth consecutive policy review in which the RBI kept the repo rate unchanged.

The market is also watching the RBI's policy stance closely.

As many as 86 per cent of respondents in the Zee Business poll expect the central bank to adopt a hawkish stance in the October review. Another 14 per cent expect the stance to remain neutral, while none expect an accommodative stance.

Expectations of a hawkish shift come amid renewed concerns over inflation, particularly as geopolitical tensions in West Asia have raised the risk of higher crude oil prices.

India's retail inflation accelerated to an eight-month high of 4.82 per cent in August from 4.45 per cent in July.

CPI inflation has remained above the RBI's 4 per cent target for three consecutive months. Inflation rose from 3.93 per cent in May to 4.38 per cent in June and 4.45 per cent in July before accelerating further in August.

The August reading was also the highest recorded so far under the new CPI series, which uses 2024 as the base year.

The RBI's inflation projections will be another key trigger for markets.

All respondents in the Zee Business poll expect the central bank to revise its inflation forecast in the October policy review.

In its August policy, the RBI had projected FY27 CPI inflation at 5.0 per cent. It had estimated inflation at 4.7 per cent in the second quarter, 5.9 per cent in the third quarter and 5.5 per cent in the fourth quarter. Inflation for the first quarter of FY28 was projected at 5.3 per cent.

The central bank had also projected core inflation at 4.3 per cent for FY27.

Renewed geopolitical tensions in West Asia could put further pressure on the inflation outlook, particularly through crude oil prices. Rising global bond yields and rate hikes by other central banks are also likely to remain important factors for the RBI.

Market participants will therefore closely watch the central bank's commentary on geopolitical risks, crude oil prices, global yields, El Nino and domestic demand during the festive season.

The Zee Business poll also suggests that market participants expect the RBI's tightening cycle to extend beyond the October meeting.

As many as 86 per cent of respondents expect cumulative rate hikes of 50 bps in FY27, while another 14 per cent see the possibility of 50-75 bps of increases.

None of the respondents expect the RBI to raise rates by only 25 bps during FY27.