The RBI Governor Sanjay Malhotra, in a welcome move, reduces the repo rate by 50 bps (basis points) to 5.50% and the CRR rate by 100 BPS to 3%, providing ample liquidity to the financial services system. The brilliant move is likely to spur corporate activities and consumer spending. At the same time, RBI sees lower inflation, and its forecasts are 3.7%below the target range. With inflation below the RBI’s target range of 4% plus or minus 2%, there is room for further rate cuts. The move to a neutral attitude enables RBI to be data dependent and reduce by 25 bps or more in the coming months, as the global tariff uncertainty weighs on economic growth. It is good to note that interest rates are still above the 4.40% levels before the pandemic. RBI also reduced the CRR Reservations (CRR) by 100 BPS to 3%, which released the liquidity for banks and released £ 2.5 billion into the system to increase lending and economic growth. This decisive action, powered by a prioritization of economic growth and the moderation of inflation, is aimed at stimulating economic activity. While the market expected RBI’s accommodating financial attitude, the proactive approach of RBI increases to reduce 50 BPS growth. In addition, RBI maintained the GDP growth at 6.5%. Catalysts that improve India’s stock outlook 1. Interest rates have been 100 bps lower over the past four months. 2. Inflation is at a low of 3.2%at a low. 3. Oil prices are -23%lower. 4. RBI released £ 2.69 trillion surplus to the government. 5. The fiscal deficit is healthy at 4.2%. With the necessary conditions in place, we expect businesses and consumers to take advantage of these opportunities to expand their business activities. Beneficiaries of RBI’s significant cut industries: In the past four months, a cumulative 100 bps of interest rates have been reduced, which will reduce the working capital and borrowing costs for corporate India. This reduction in interest rates is particularly beneficial for power programs in thermal and renewable energy and mining, as they will see a significant decline in operating costs and thus improve their profit margins. Government infrastructure: Spending on roads and construction activity will benefit from lower working capital. It comes at a good time before the next budget. Infrastructure businesses will begin to see a 12-18% revenue growth acceleration. Financial statements: The rate reduction is an indication to encourage growth via monetary instruments. The rate cut will undoubtedly hit the net rent margins (NIMS) for banks and borrowers with a larger amount of floating assets and a lower percentage of fixed assets. However, the cutting of 50 BPS is greater than consensus expectations and can lead to higher loan growth for banks, which will help the book growth of most lenders. Property is another expected beneficiary, as most home loans float and the growth of demand must facilitate. Consumers: EMIs on housing loans have become cheaper, offering the consumer a higher disposable income and refreshes growth for cars and other durable goods. The demand for hotels and retail will benefit. Property activity is likely to record the relief of rates. In general, the 2-4% reduction in profit growth at the total level seen in the closed quarter should find a bottom with the RBI’s 50 BPS cut. Expect the upgrade cycle to begin in the next quarter or two, led by cyclical industries, finance and durable. The author, Chakri Vokapriya, is the CIO shares of LGT Wealth India. Disclaimer: The views and recommendations above are those of individual analysts or brokerage companies, and not of currency. We advise investors to check with certified experts before making investment decisions.
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