RBI Repo Rate Hike Likely At 25 Bps; Banks, NBFCs, Realty And Auto Stocks In Focus As Volatility Rises

The Reserve Bank of India (RBI) is widely expected to raise the repo rate by 25 basis points (bps) to 5.50%. Banks, non-banking financial companies (NBFCs), realty and automobile stocks are likely to remain in focus as investors assess the impact of higher borrowing costs.

The anticipated RBI repo rate hike comes as domestic inflation remains above the central bank’s 4% target. Elevated crude oil prices are adding to inflation risks and could also widen the current account deficit.

The market has largely factored in a 25 bps increase. Investors are therefore likely to focus more closely on the RBI’s policy stance and its growth and inflation estimates.

Rate-Sensitive Sectors Could See Diverging Impact

Higher floating rates could bolster margins and benefit banks. Strong deposit and credit growth also point to favourable prospects for the financial sector.

Real estate could face pressure with higher home loan rates. Borrowing rates could rise, and home demand could be impacted. Developers with less leverage may be relatively better positioned.

Financing costs might also put automobiles and consumer durables under pressure. It could make it more expensive to finance big-ticket purchases and potentially dampen demand.

Capital goods and infrastructure companies could face another challenge if higher interest rates slow private investment and project activity.

Crude, Yields And FII Selling Put Markets Under Pressure

The policy decision comes after the Nifty and Sensex declined for eight consecutive weeks, their longest losing streak in 25 years. The weakness has been linked to higher crude prices, rising global bond yields, currency risks and sustained foreign selling, rather than primarily to weaker domestic activity.

Foreign Institutional Investors (FIIs) have remained net sellers for seven consecutive weeks, while the Nifty fell 3.1% last week. The US 10-year yield has also moved above 5%, increasing the appeal of safer assets for global investors.

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