Short Call: RBI walks a tightrope amid growth pangs and inflation woes; Zen Tech, Newgen Software in focus

RBI Governor Shaktikanta Das

As India's economic engine sputters, the Reserve Bank of India (RBI) finds itself walking on thin ice. Growth projections have softened, inflation remains uncomfortably high, and global uncertainties loom large. The central bank’s latest policy decisions reflect a cautious recalibration, balancing immediate pressures with long-term stability.

The RBI kept the repo rate unchanged at 6.5%, resisting growing calls for rate cuts. However, the highlight of its measures was a 50-basis point reduction in the cash reserve ratio (CRR) to 4%, aimed at injecting Rs 1.2 trillion into the banking system. This move is designed to ease a liquidity crunch affected by the RBI’s interventions in the foreign exchange market to stabilize the rupee. The central bank sold the Indian Rupee to prevent the rupee from depreciating, draining liquidity in the process.

To address this, the RBI has also encouraged banks to raise more funds through Foreign Currency Non-Resident (Bank) accounts, or FCNR(B) accounts. These are deposit accounts where non-resident Indians can park their money in foreign currencies with Indian banks. By increasing the interest spreads banks can offer on such deposits, the RBI hopes to attract more dollar inflows, boosting foreign exchange reserves while relieving pressure on domestic liquidity.

Yet, the broader challenges persist. Growth estimates for FY25 have been lowered to 6.6%, while inflation forecasts have climbed to 4.8%. Rising food and core inflation are eroding household incomes, curbing consumption, and deterring private investment. This is contributing to a vicious cycle of weak demand, limited job creation, and subdued capital spending.

Amid these headwinds, the central bank is holding back on rate cuts, opting for a careful and incremental strategy. It recognizes that structural challenges, including slowing global trade and rising protectionism, require a measured approach.

While the road ahead remains uncertain, the RBI’s steps aim to stabilize the economy and create a foundation for sustained recovery.

Newgen Software (Rs 1,352.90, +3.3%)

Shares rose after Jefferies’ positive outlook.

Bull case: The latest order win from the RBI may further drive up deals from other Indian banks. Jefferies feels continuous order inflows and new client additions will support growth. Aspiration to reach $500 million in the next 3-4 years also aids confidence.

Bear case: The sharp surge in the stock as it soared 15% last week, may limit the scope for further upsides. Delays in conversions of BFSI deals, its primary focus area, may derail the company’s growth trajectory.

Zen Technologies (Rs 1,913; +1.4%)

Shares reached a lifetime high after Nuvama Institutional Equities reiterated its 'Buy' rating on the stock, driven by its partnership with AVT Simulation.

Bull Case: Partnership with Florida-based AVT Simulation marks a strategic entry into the US defence market. A key focus for H2FY25 is achieving order intake growth alongside meeting the guidance of 50 percent revenue CAGR and 25 percent PAT margin over the next 2–3 years.

Bear Case: Heightened competitive intensity, a potential slowdown in order momentum, or changes in government policy that may impact defense budgets, are seen as key risks to the company's growth.

(Inputs from Neeshita and Vaibhavi)