Stock markets likely to stay range-bound

Rate cut a response to economic data; US tariffs still weigh: Analysts

The Reserve Bank of India (RBI) on Friday delivered a 25 basis point (bps) repo rate cut analysts expected, driven by the strong 8.2 per cent GDP growth in the September quarter.

However, analysts do not expect a runaway market rally as the impact of US tariffs continues.

Corporate earnings and the rupee’s trajectory, coupled with the geopolitical situation will determine market sentiment.

The rate cut was not a bolt from the blue, said U R Bhat, co-founder and director, Alphaniti Fintech.

Indian markets have learnt to live with the new reality of higher import duty, he said.

Exporters are diversifying and with the Russian President’s visit to India, industry can find new markets through negotiated trade deals.

“Inflation is as low as it can get. Trade deal uncertainty with the US will continue for some time.

"The RBI wanted to convey the right signals as regards interest rates in the light of inflation...

"The markets will mostly remain range-bound in the short-to-medium term, with gains capped at around 2-3 per cent from current levels,” Bhat said.

The RBI revised its GDP growth forecast for FY26 upward to 7.3 per cent from its previous estimate of 6.8 per cent.

It revised the inflation forecast for FY26 to 2 per cent from 2.6 per cent earlier.

The central bank’s unanimous decision in cutting the repo rate reflects the consensus in the monetary policy committee that boosting growth is a risk worth taking, even in the context of a depreciating rupee, said V K Vijayakumar, chief investment strategist at Geojit Investments.

“The projection of 7.3 per cent GDP growth for FY26 is positive for the market.

"Banks will like the policy decision overall, but are unlikely to respond very positively to the rate cut since their NIMs [net interest margins] will come under pressure and they will face difficulties in mobilising deposits if deposit rates are lowered.

"Rate-sensitive sectors like autos and real estate stand to gain from the RBI cut,” he said.

At the bourses, the BSE Sensex has rallied around 9 per cent in calendar year 2025.

Mid and small-cap indices, however, have been laggards with an up move of 0.5 per cent and fall of 7 per cent, respectively, according to data.

Markets expected a rate cut but what the RBI announced may not be enough to take them higher from current levels, said G Chokkalingam, founder and head of research at Equinomics Research.

“The manufacturing sector needs more push and further cuts in rates to boost consumption.

"There are liquidity concerns, especially for stocks outside the Sensex and Nifty.

"That apart, rupee weakness is worrying, which will keep FII [foreign institutional investor] money from the Indian markets at bay.

"Though largecaps may remain relatively stable, a significant upside is ruled out for now,” he said.