Rate-sensitive stocks decline after RBI keeps repo rate unchanged, reiterates "neutral" stance

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Rate-sensitive stocks, such as banking, non-banking financial services, realty, and auto counters traded muted, as the Reserve Bank of India's Monetary Policy Committee kept the key lending rate unchanged at 5.5 percent, reiterating its "neutral" stance on Wednesday, August 6.

After the announcement of RBI's July policy decision, Bank Nifty fell marginally, while Nifty Auto and Realty indices declined in the range of 0.4-0.8 percent.

"Domestic growth is holding up and is evolving along the lines of our assessment, though some high frequency indicators showed mixed signals in May and June. Over the medium term, the Indian economy holds bright prospects in the changing world order drawing on its inherit strength, robust fundamentals and comfortable buffers," said RBI Governor Sanjay Malhotra.

The RBI Governor added that retail inflation was likely to see an uptick in the last quarter of FY2026, in-line with analyst expectations, however, core inflation is likely to remain steady at 4 percent mark.

The RBI revised its CPI inflation projections downward for most of FY26, signaling easing price pressures. Headline inflation for the full year FY26 is now projected at 3.1 percent, down from the earlier estimate of 3.7 percent. For Q2FY26, the forecast has been sharply cut to 2.1 percent from 3.4 percent, while Q3 is revised to 3.1 percent from 3.9 percent.

The projection for Q4 remains unchanged at 4.4 percent. Additionally, for Q1FY27, pegging inflation at 4.9 percent.

The Reserve Bank of India also retained its real GDP growth forecast for the current financial year at 6.5 percent. The quarterly projections remain unchanged, with Q1 growth estimated at 6.5 percent, Q2 at 6.7 percent, Q3 at 6.6 percent, and Q4 at 6.3 percent.

In the previous MPC meeting, the Reserve Bank of India slashed the benchmark lending rate by 50 basis points, ahead of expectations. The RBI also changed its stance to 'neutral', from 'accommodative' earlier.

Prior to the announcement, analysts believed that the central bank would undertake a 'dovish pause', with many expecting a downwards revision to the consumer price inflation (CPI) estimates for FY2026.

Over the past three MPC meetings, the RBI has trimmed the benchmark lending rate by 100 basis points, while the policy stance stands at 'neutral.' After front-loading the cuts for the current fiscal year, most experts are pencilling a pause.

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