RBI holds repo rate: What it means for equity, bond market investors?

RBI, on Wednesday, kept repo rate unchanged at 5.25% but trimmed FY27 growth outlook. Pankaj Pandey of ICICI Securities explains the policy impact onequity markets, bond yields, and investor strategy

Pankaj Pandey of ICICI Securities believes BFSI, auto sectors may benefit from RBI policy

Pankaj Pandey Mumbai

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The Reserve Bank of India (RBI), on April 8, kept the repo rate unchanged at 5.25 per cent, while maintaining the monetary policy stance at "Neutral".

The gross domestic product (GDP) growth estimate for FY27 (as per new series) has been pegged at 6.9 per cent. With this, the Reserve Bank of India (RBI) has lowered GDP growth estimates by average 25 bps for H1FY27 compared to earlier estimate. The RBI expects a rebound in growth in H2 with Q3 grwth projected at 7.0 per cent and Q4 at 7.2 per cent. In his statement, RBI Governor Sanjay Malhotra highlighted that the risks to the baseline projections are tilted to the downside, with uncertainty remaining elevated due to the ongoing West Asia conflict.

CPI inflation for FY27, meanwhile, is estimated at 4.6 per cent in line with market expectations with Q1FY27 at 4 per cent vs 4.1 per cent earlier and Q2FY27 at 4.4 per cent vs 4.2 per cent earlier with risks on the upside. The growth-inflation dynamic has turned for the worse with GDP growth projection coming down with risk on the downside while inflation projection has increased with risk on the upside.

What's in it for equity markets?

While the RBI has acknowledged that worsening of the growth-inflation dynamics, both equity and debt market have more than discounted the same reflected by the sharp price correction in the last 2-3 months. Many of the company managements have already cautioned on the supply disruption and input cost price pressure and therefore markets have already started to discount earnings downgrade risk for Q1FY27.

Equity markets like continuity and stability from policy makers like RBI. While the inflation is rising, the absolute base at 3.2 per cent provide enough room for the central bank to look through incremental rise in the data print to 4.6 per cent. Therefore, there is no risk of any rate hike in the current financial year. READ | RBI policy carefully balances growth and inflation control: Somil Mehta

For equity markets, liquidity is paramount both from the system liquidity perspective and portfolio allocation perspective. Liquidity support from the RBI has been exceptional since last one year. System liquidity, as measured by the net position under the Liquidity Adjustment Facility (LAF), stood at an average daily surplus of ₹2.3 trillion since the last MPC meeting.

The RBI intends to maintain surplus liquidity and the same is equity-positive. Portfolio liquidity driven by FPIs so far been negative and if global war subsides as recent developments indicate, may also turn for the positive.

What's in it for debt markets?

RBI policy has very little takeaway for the debt markets as there is no mention of any open market operations (OMO) calendar announcements or tackling supply side pressure. The only important takeaway is the mention of the continuation of active liquidity support and mention of currency support stating that "RBI stands committed to this policy and would judiciously contain excessive or disruptive volatility to ensure that self-fulfilling expectations do not exacerbate currency movements beyond what is warranted by fundamentals".

However, similar to equity market, continuation of status quo for the next few policy meetings and no major negative development is yield-positive as bond yields at current absolute level across the curve, is attractively placed. 10-year benchmark G-Sec yield at around 7.0 per cent is a "buy" with a positive optionality if global commodity prices cool-off and global bond yields subside. READ | RBI policy shows it may be time to give fixed income investment a chance

What does the RBI policy mean for for investors?

While the RBI has acknowledged shifting of growth-inflation dynamic, it remains well within comfort zone to ensure continuity and status quo for the foreseeable future. With apprehension of immediate rate hikes gone away, interest-rate sensitive sectors are expected to outperform as the outlook for credit and investment remains robust; thus, preferring interest rate sensitive sectors particularly BFSI and Auto sector.

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Disclaimer: Pankaj Pandey is Head of Retail Research at ICICI Securities. Views expressed are personal.

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First Published: Apr 08 2026 | 2:01 PM IST