India terror strike casts shadow over equities, but rate-cut cycle keeps rate-sensitive sectors in focus

Top gainers included Tata Motors, Eternal, Jio Financial, Bajaj Finance, and Shriram Finance.

As geopolitical tensions rise following India’s Operation Sindoor, market experts say uncertainty could impede further gains in Indian equities—even as a supportive global rate-cut cycle keeps rate-sensitive sectors firmly in play.

“Geopolitical risks that India is facing right now will continue to be a major driver of market volatility, even as the trajectory of US monetary policy will remain in focus too,” said Nilesh Shah, Managing Director at Kotak Mahindra Asset Management.

Operation Sindoor, India’s recent precision strike on cross-border terror infrastructure, has heightened geopolitical uncertainty and cast a shadow over investor sentiment—potentially disrupting what had been a steady market rebound.

Gift Nifty showed a negative opening for India equities this morning. But for Operation Sindoor, which escalates the fear factor in markets, investors were not expecting any risk from the FOMC, which is likely to announce its rate decision later tonight.

In the absence of clarity on how the tariff situation will evolve, the Federal Reserve is widely expected to keep rates intact while reiterating that further changes to rates will be driven by tariff policy and likely impact on inflation.

India’s equity markets have proven resilient so far. The Sensex is up 1.5 percent year-to-date, outperforming several global peers even as volatility persists elsewhere. Now they are likely to yield some of the recent gains, and in the best case, move sideways.

Rate trajectory

While the FOMC will announce its rate decision later today, on May 7, there are a series of other central bank meetings cross the globe: Bank of England (on May 8), Reserve Bank of Australia (May 19), and banks of key emerging markets like Brazil (May 7), Indonesia (May 21) and Mexico (May 15).

Investors generally expect the rate trajectory to remain downwards. “The rate-cut cycle is likely to continue across most global markets, but the pace is slowing,” said Akshay Chinchalkar, Head of Research at Axis Securities.

Yet, analysts say that even a fragmented easing cycle globally will create a favourable setup for Indian equities. “These anticipated global cuts coincide with a healthy revival in Indian equities, even as earnings expectations stay constructive,” said Nirav Karkera, Head of Research at Fisdom.

“Lower world yields should make India’s equity‑risk premium more appealing to foreign investors—especially if a softer dollar persists,” he added. “Given headwinds for developed‑market stocks, a partial shift toward emerging‑market exposure looks logical, and India stands out within that group."

Where to Focus
For investors, the focus should remain on domestic consumption and infrastructure spending. Sectors like utilities, real estate, and consumer goods, which are more tied to domestic demand, could be the sweet spot for investors looking for stability, says Chinchalkar. On the flip side, sectors relying heavily on exports might face more turbulence if global trade conditions deteriorate further.

At home, the Reserve Bank of India (RBI) is expected to continue its liquidity-focused stance, ensuring that any rate cuts do not derail the broader economic recovery. Rate-sensitive sectors like banking, autos, and infrastructure are well-positioned to capitalise on this trend, suggest analysts.
These rate-sensitive sectors could see disproportionate benefits as debt becomes cheaper and consumption strengthens.

"Cheaper debt servicing adds a margin tailwind, strengthening the earnings‑recovery narrative and improving valuations at current levels," Karkera explained. Domestically, the Reserve Bank of India is expected to retain its liquidity-focused stance, with analysts eyeing tailwinds for rate-sensitive pockets such as banking, autos, and infrastructure. “Cheaper debt servicing adds a margin tailwind, strengthening the earnings‑recovery narrative and improving valuations at current levels,” Karkera said.

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