The Reserve Bank of India delivered a big positive for the Indian stock market - a 25 bps repo rate cut coupled with a ₹1.45 lakh crore liquidity infusion - with analysts flagging NBFCs, small- and mid-sized (SMID) banks, and automobile companies as the biggest beneficiaries.
According to Seshadri Sen, Head of Research and Strategist at Emkay Global Financial Services, the RBI policy decisions addresses stress in the bond market, eases domestic liquidity constraints, and should support equity market sentiment in the near term.
Short-End Bond Rally Boosts NBFCs, SMID Banks
The liquidity injection — through ₹1 lakh crore of open market operations (OMOs) and a $5 billion ( ₹45,000 crore) USD/INR swap — triggered a rally in sub-5-year bond yields, significantly more than the movement seen in long-term bonds.
This sharper fall in short-end yields disproportionately benefits NBFCs and SMID banks by lowering their borrowing and deposit costs.
According to him, NBFCs stand to gain from an improvement in cost of funds, while SMID banks will benefit from easier liquidity and recent capital infusions from foreign banks and PE investors.
Large banks may see some short-term pressure due to the immediate impact of lower rates on floating-rate loan portfolios, but the broader financial sector outlook remains constructive. Emkay’s preferred picks include Bajaj Finserv, Shriram Finance, and IDFC First Bank.
Credit Growth Outlook Strengthens
Credit growth has already outpaced expectations at 11.3% as of mid-November, and the RBI’s easing measures should alleviate concerns around rising loan-to-deposit ratios. Emkay expects credit growth to strengthen to 13.3% in FY27, led primarily by retail demand as consumption revives.
However, Sen flagged that the yield curve is likely to remain steep given fiscal deficit pressures stemming from lower GST revenues, subdued nominal GDP, and constraints on reducing government spending.
Autos Emerge a Clear Winner
The auto sector is set to be another major beneficiary as GST cuts coincide with easier financing conditions. Emkay expects an extended upcycle in automobile demand, retaining Maruti Suzuki India and TVS Motor Company as top picks.
Short-Term Relief, Long-Term Watchpoints
While the RBI’s measures provide immediate support to liquidity and financial stability, Sen cautioned that underlying macro stress persists. A widening current account deficit (CAD) remains a key risk, and progress on the India–US trade deal — seen as crucial for addressing external-sector pressures — remains unclear.
Constructive on Equities Despite CAD Risks
Despite the volatility risk from CAD pressures, Emkay remains positive on Indian equities, expecting a consumption-led economic recovery and strong earnings rebound from 2HFY26.
“We remain constructive on Indian equities, with the caveat that CAD pressures could lead to periodic selloffs. Underlying trends remain resilient – we expect a consumption-led recovery in the economy, driving a strong earnings recovery from 2HFY26,” Sen said.
Emkay’s preferred sectors are Consumer discretionary, Healthcare, and Materials, along with high-growth themes such as Internet, EMS, aviation, and SMID banks.
Disclaimer: 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.
