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[I] FOCUS: Market eyes Nifty 50 lifetime high post surprise repo rate, CRR cuts

 

Informist, Friday, Jun. 6, 20257

 

By Anshul Choudhary

 

MUMBAI – The surprise 50 basis point repo rate cut and 100 bps reduction in cash reserve ratio are likely to push the Nifty 50 to a fresh lifetime high, market participants said. The RBI bonanza will help push growth in the Indian economy, which had slowed down tangibly in 2024-25 (Apr-Mar), they said. 

 

The benchmark index jumped 1?ter the RBI's announcement. The Nifty 50 Friday ended at 25003.05, just 5?low its lifetime high of 26277.35 points touched in September last year. Though analysts are divided over when the Nifty 50 will hit the lifetime high, they said this appears to be a real possibility now. "At an optimistic level, after discounting all the factors and with this kind of a policy and the macro tailwinds, I think this market is now set for a new high before Diwali (October)," Dharmesh Kant, head of equity research at Cholamandalam Securities, said.

 

The RBI Friday took the market by surprise by announcing a 50 bps cut in repo rate and a 100 bps reduction in CRR. The market was expecting the central bank to cut the policy repo rate by 25 bps. With this, the RBI has cut the repo rate by 100 bps in 2025 to 5.50%. The Monetary Policy Committee of the RBI, however, changed its stance to "neutral" from "accommodative", suggesting all three possibilities – cut, hike and pause – are on the table. 

 

Analysts are positive that the measures announced by the RBI, along with above-normal monsoon, lower inflation, and the cut in personal income tax, will help push up GDP growth in 2025-26 (Apr-Mar). They are confident that India will grow in line with the RBI's forecast of 6.5% for FY26 and may even surpass it if the threat of tariffs eases. "Once that (tariff uncertainty) is clear, probably in August, you'll see a slight uptick in growth," Amit Kumar Gupta, founder of Fintrekk Capital, said. "We'll probably end up around 7% (GDP growth) for this financial year, if all goes well."

 

Analysts expect the latest measures to boost consumption in a major way and said sales of entry-level cars, two-wheelers, and real estate will rise as loans are set to get cheaper. "Automobiles will be directly impacted... consumer durables should see some activity... anything and everything to do with domestic individual, household consumption (is expected) to do better," Kant said.

 

Lower interest rates are also expected to boost credit growth with some hoping it would help growth in unsecured lending, supporting overall rise in consumption, even as banks' net interest margins are expected to fall in the coming quarters. State Bank of India Chairman C.S. Setty told CNBC-TV18 that the bank's credit growth could improve to around 13% in FY26 from its earlier guidance of 12% if the retail segment picks up "the way we expect now".

 

With the repo rate cut to 5.50%, lower taxes, and the expectation of a good monsoon likely resulting in better growth in the second half of the financial year, analysts are confident about an improvement in the earnings growth of companies. "(The) base effect will come into play now... we should see earnings growth of 13-14% in FY26 (for Nifty 50)," Sanjeev Hota, head of research at Mirae Asset Sharekhan, said. Fintrekk Capital's Gupta has a relatively conservative view and expects Nifty 50 earnings growth at 11-12% this financial year. In FY25, Nifty 50 earnings per share grew only 1%, Motilal Oswal Financial Services said in a report this week.

 

TARIFF RISKS

While analysts are hopeful domestic-oriented companies will do better this financial year, earnings of companies that depend on exports remain at risk. Due to this, earnings growth estimates for FY26 are still at risk of downgrades if the global growth outlook, especially that for the US, worsens due to high tariffs. "2025 will still be a difficult year for the market," Hota of Sharekhan said. "We don't know what may happen outside (globally), what negative surprises may come for the market."

 

Analysts said the market hasn't factored in a slowdown in global growth. Although the pause in reciprocal tariffs is in effect, the base tariff of 10% is still applicable and can affect global growth negatively, analysts said. Information technology companies are at the biggest risk as a large part of their business is from US clients, some of whom have already paused orders due to the uncertainty around tariffs, analysts said.

 

The flip-flops by US President Donald Trump on tariffs have left the world guessing over the future of global trade and growth. Barring the United Kingdom, no other country has signed trade agreements with the US after Trump paused tariffs in April. Moreover, there is a fear that the bill announced by Trump to cut taxes for US citizens will push up the already elevated levels of US debt.    

 

Some also worry that the RBI has done all it could to support growth. "There is no margin of error left (after 50 bps rate cut)... now support can only come if currency (rupee) appreciates. If your currency depreciates, what will you do then?" Kant said.

 

Analysts largely agree that the rate cuts in future will be less intense and dependent on economic data, with some saying the Monetary Policy Committee may pause at its meeting in August. "Data dependency does not assure a smooth sequence of rate cuts in future," Emkay Wealth Management said in a note.  End

 

Edited by Saji George Titus

 

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