Key Takeaways from RBI MPC Review – February 2025

Economic & Equity Market Impact

Key Takeaways:

•       Rate Cut: RBI’s MPC reduced the repo rate by 25bps to 6.25%, signaling a shift towards a less restrictive policy stance.

•       Growth Outlook: FY26 GDP growth revised down to 6.7% from 7.1% amid weakening urban demand.

•       Inflation Trajectory: FY26 inflation projected at 4.2%, driven by food price corrections but tempered by INR depreciation and rising commodity costs.

•       Liquidity Conditions: No fresh liquidity measures, but RBI remains committed to providing support.

•       Market Implications: Bullish outlook for rate sensitive sectors, with equity market sentiment improving on expectations of further rate cuts.

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Economic Impact

Growth Moderation but Consumption Support

The downward revision in GDP growth (6.7% vs. 7.1%) reflects slowing urban demand. However, government tax cuts (INR 1tn stimulus) and resilient rural demand are expected to cushion the slowdown. The RBI expects capex driven investment recovery, aiding medium-term growth.

Inflation: Near Target, but Risks Persist

Headline inflation has eased due to falling vegetable prices, yet remains elevated at 4.2% in FY26. The RBI noted pressures from global commodity prices and INR depreciation, necessitating a cautious approach towards further rate cuts.

Equity Market & Sectoral Impact

Rate Sensitive Sectors to Benefit

      Banking & NBFCs: Improved liquidity and rate cuts enhance credit demand but may pressure net interest margins.

      Real Estate & Infrastructure: Lower borrowing costs support housing demand and infra investments.

      Consumer Discretionary: Expected recovery in automobile & retail segments, benefiting from better financing conditions.

      IT & Export Oriented Sectors: INR depreciation aids IT & pharma earnings, though global volatility remains a concern.

Market Sentiment: Constructive, But Watch for Global Risks

Despite near-term growth headwinds, expectations of another 25bps rate cut in April could sustain positive market momentum. However, capital outflows from EMs due to high US yields remain a risk.

Insights

Revised GDP Growth Estimates (FY26)	Inflation Projection (FY26)	Sectoral Performance Outlook
6.7% (Revised) vs. 7.1% (Previous)	4.2% vs. Previous 4.1%	Rate Sensitive Sectors to Outperform

RBI Monetary Policy Committee (MPC) Decisions - February 7, 2025
Key Policy Parameter	Status Before Meeting	Decision at Today's Meeting
Repo Rate	6.50%	6.25% (Cut by 25 bps)
Standing Deposit Facility (SDF)	6.25%	6.00% (Cut by 25 bps)
Bank Rate / Marginal Standing Facility (MSF) Rate	6.75%	6.50% (Cut by 25 bps)
Monetary Policy Stance	Neutral	Neutral (Unchanged)

AeonVitta’s Take

RBI’s rate cut sets the stage for a moderate easing cycle, supporting growth and asset prices. With inflation stabilizing, equities remain attractive, particularly in rate sensitive and consumption driven sectors. However, global volatility necessitates a nimble, research driven investment approach.

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