Indian stock market: Reserve Bank of India (RBI) governor Sanjay Malhotra has demonstrated a penchant for surprising financial markets, especially through bold rate and liquidity actions that deviated from conventional timing and scale expectations.
In February 2025, he delivered a 25 bp repo rate cut to 6.25%, marking the first rate cut in nearly five years. This move was widely expected by markets, yet still notable as a turnaround in policy stance.
More significantly, in June 2025, the RBI announced an unexpected 50 bp rate cut (to 5.50%) — double what most analysts had forecast — alongside a 100 bp CRR cut, releasing substantial liquidity into the banking system.
Now, the question remains if the third time would be a charm?
RBI Rate Cut Preview
While the consensus remains that Governor Malhotra and team are unlikely to announce any rate cut in the upcoming MPC outcome, slated for tomorrow, August 7, certain factions of the market are unable to rule out the possibility.
State Bank of India, for instance, expects RBI to announce a 25 basis points (bps) repo rate cut in the upcoming MPC outcome. The report said a frontloaded rate cut in August could bring an “early Diwali” by boosting credit growth, especially as the festive season in FY26 is also frontloaded, as per ANI.
It added that past data show a clear trend, any repo rate cut ahead of Diwali results in higher credit growth during the festive period.
Meanwhile, Harshal Dasani, Business Head, INVasset PMS, also expects the RBI to pull the trigger and likely announce another 25 bps rate cut as it could look to protect the Indian economy from the impact of fresh tariffs unleashed by US President Donald Trump, and as inflation remains in its comfort band.
While Nuvama Institutional Equities expects a status quo this time, it doesn’t rule out the possibility of more rate cuts down the line. After front-loading a 50bp-rate cut and shifting to a ‘neutral’ stance at the last policy, we see MPC holding rates steady at 5.5%, the brokerage said.
“Yet, we think the case for more cuts is compelling. Economy is losing momentum (seen in credit growth, PV sales, RE sales, profits, exports, capex) while inflation remains benign. With the fiscal policy on a consolidation path, the RBI must do the heavy lifting to revive demand,” it added.
Despite the RBI’s rate cut and banks lowering deposit rates, deposit growth continues to outpace credit offtake, according to a CareEdge report. As of June 13, 2025, deposits declined 0.44% sequentially to ₹230.7 lakh crore, reflecting slower growth compared to 12.1% (ex-merger) last year. Credit offtake stood at ₹183.1 lakh crore, growing 9.6% YoY — significantly lower than the 15.5% seen last year — due to a high base effect and muted demand across segments, including retail.
Other indicators, like auto sales, are also pointing to slowing economic momentum. Domestic passenger vehicle industry volumes decreased by 1.4% yoy in Q1 FY26. Two-wheeler industry volumes also decreased by 8% YoY during this period, owing to the weak performance of the motorcycle and scooter segments on a higher base.
Can RBI Rate Cut Revive Indian Stock Market?
Now, with the tariffs unleashed by Trump, along with the promise of more penalties, the Indian economy faces a fresh round of headwinds.
In such a scenario, analysts believe that even if the RBI pulls the rate cut trigger, it is unlikely to result in sustained strength in the stock market. The answer to the revival of the market bulls lies in the resolution of the trade deal, believe analysts.
Sensex and Nifty have been rangebound for over a month, as multiple headwinds like FII flows, tariff hike and tepid earnings growth are keeping momentum in check.
According to Dasani, if the RBI delivers a surprise 25 bps rate cut in its August 5 policy, equity markets may initially react with cautious optimism — but the deeper message will depend on how the move is framed.
“If the rate cut is positioned as a proactive measure to support liquidity, lending, and growth amid global headwinds, markets may see it as a positive signal that domestic inflation is under control and that the central bank is confident about macro stability. However, if the cut is perceived as a response to downside risks to growth or external stress, markets may fear the RBI knows something they don’t — triggering a defensive rotation into FMCG or IT,” Dasani added.
Crucially, the context matters! India’s CPI at 4.8%, easing core inflation, strong GST collections ( ₹1.72 lakh crore in July), and robust GDP expectations (~7% for Q1FY26) provide enough cover for the RBI to act without looking desperate, he said.
Similarly, Vinit Bolinjkar, Head of Research at Ventura Securities, said that the current events weighing on the Indian market do warrant a rate cut, but I am sceptical of the RBI acting on it right now because the rupee has depreciated quite a bit.
He believes that even if the RBI were to cut rate, market could see a pop but would resume its downtrend given the fact that there are unlikely to be more rate cuts ahead.
“Until and unless we have the resolution of the tariff deal, it’s difficult for the market to get into the next leg of the up move. I rather think the tariff war could escalate, which could send the market into a tailspin for at least one to two quarters,” opined Bolinjkar.
Vaibhav Vidwani, Research Analyst at Bonanza, also expects the market reaction to be mixed; though the interpretation would depend heavily on the underlying economic context, she said.
Analysts believe sectors like banks, autos, and rate-sensitive housing stocks could rally in the short term on expectations of improved credit transmission and demand pickup.
Lastly, Ajit Mishra of Religare Broking expects a negative impact on the market from the latest rate cut move. He said it could act as a negative trigger, in case it happens, because it could signal that something is wrong with the economy.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
