The Reserve Bank of India’s 25-basis-point repo rate hike to 5.5% has turned out to be largely a non-event for equity markets—the move had been widely expected anyway. What caught the market’s attention was the combination of a sharper growth outlook and a less comfortable inflation trajectory: the RBI raised its FY27 GDP growth forecast to 7.1% from 6.7%, but also lifted its inflation forecast to 5.2% from 5% and shifted its stance from neutral to “calibrated tightening.”
For equities, this creates a mixed signal. The GDP upgrade is unequivocally supportive of earnings. The inflation upgrade and tightening bias, however, suggest that the rate hike is certainly not a one-off.
The starting point for the market is already weak. The Nifty 50 fell 6.1% in September to 22,620, its worst monthly decline since March, while the Sensex dropped 5.8% to 72,480. The Nifty also entered October after an eight-week losing streak, its longest in 25 years. Since the RBI’s August 5 policy pause, the index has fallen roughly 7.5%.
Now, what does this really mean? It means while some of the worries are already reflected in prices, the policy does not provide the kind of monetary-policy relief that markets may have hoped for. Instead, it tells you that the central bank will clearly prioritise inflation. This makes sense since growth is anyway running at a healthy pace for now. GDP expanded 7.8% in the April-June quarter, above the RBI’s earlier 7% estimate, prompting the 40-basis-point upgrade in the full-year forecast. For corporate India, this translates into stronger demand and revenue growth, particularly for domestically oriented sectors.
The immediate test will be the September-quarter earnings season. Expectations remain strong at the headline level. Consensus estimates peg Nifty 50 companies will report a near 20 % year-on-year revenue growth and a similar profit growth in Q2FY27, compared with just half as much growth in the year-ago quarter. With vehicles sales strong, credit growth growing at a fast clip, and refining margins elevated, automobiles, banking and finance, metals and oil and gas are expected to be among the key contributors.