Indian stocks rise after RBI rate cut boost
Indian stocks rise after RBI rate cut, financials lead
Dec 5 (Reuters) — India’s stock benchmarks edged higher on Friday, supported primarily by domestic rate-sensitive financials, after the Reserve Bank of India (RBI) lowered its key policy interest rate by 25 basis points. The rate cut, which was widely anticipated but still closely watched by markets, provided a fresh boost to banking, non-banking financial companies (NBFCs), auto makers, and real estate stocks—all sectors that typically respond strongly to changes in borrowing costs.
The RBI’s move comes at a time when policymakers are attempting to balance the need for economic momentum with lingering concerns around inflation and global uncertainty. By reducing the benchmark repo rate, the central bank has effectively lowered the cost of funds for lenders, a shift that tends to strengthen credit growth in the broader economy. Analysts noted that lower interest rates usually encourage both individuals and businesses to borrow more, stimulating consumption and investment.
Financial stocks were among the top gainers in early trade. Major private-sector lenders, public-sector banks, and large NBFCs saw steady buying interest as investors priced in improved margins and stronger loan growth. According to market strategists, banks benefit significantly from a rate-cut cycle because their cost of funds declines faster than the rates at which they lend, widening net interest margins in the near term. NBFCs, which often rely heavily on market borrowings, stand to gain even more from lower funding costs, and this optimism was reflected in the day’s trading activity.
The rate cut also sparked enthusiasm in consumer-facing sectors. Cheaper loans boost the affordability of big-ticket purchases such as cars, two-wheelers, and homes. Auto manufacturers and housing-related companies, including realty developers and building-materials producers, posted modest gains. Analysts expect the festive season’s momentum and easier financing conditions to bolster sales in upcoming quarters. The real estate sector, which has begun showing early signs of recovery in key urban markets, may further benefit as homebuyers respond to lower mortgage rates.
Broader market sentiment remained mildly positive as well. While global cues were mixed due to uncertainty in overseas inflation readings and geopolitical tensions, domestic investors focused instead on the RBI’s policy easing and its forward guidance. Market experts believe the central bank may be nearing the end of its current rate-cut cycle, depending on inflation trends and global financial conditions. Still, Friday’s move was seen as a supportive step for growth, particularly for rate-sensitive industries.
Economists also highlighted that the central bank’s decision could encourage greater capital expenditure by Indian businesses, many of which had postponed expansion plans during periods of higher borrowing costs. As financing becomes more affordable, companies in manufacturing, infrastructure, and services may revive stalled investment proposals, contributing to India’s broader economic recovery.
Despite the generally upbeat mood, some market participants urged caution. They noted that while rate cuts tend to lift sentiment in the short term, sustained market performance will depend on economic data, corporate earnings, and the RBI’s future policy stance. Global volatility—especially around oil prices and currency movements—could also influence the trajectory of Indian equities.
As trading progressed, benchmark indexes held on to their early gains, reflecting optimism that the RBI’s rate reduction would provide fresh momentum to key sectors and help strengthen India’s growth outlook in the months ahead.