Muted markets, hidden tailwinds: Why H2FY26 could spark a surprise equity revival

For India, this means:
* Improved foreign capital flows as global investors seek higher-growth markets.
* Lower borrowing costs for corporates with offshore exposure.
* Rupee stability as global liquidity pressures ease.

The psychological boost from a dovish Fed should not be underestimated, especially when global investors have been underweight on emerging markets in recent quarters.

RBI Rate Cuts: Fueling domestic growth

On the home front, the RBI has slashed the repo rate from 6.5% to 5.5%, signaling its intent to revive growth. The impact is two-fold:
* For households: Lower EMIs free up disposable income, spurring consumption.
* For corporates: Lower interest costs improve profitability and encourage fresh investments.

With borrowing costs down, sectors like real estate, infrastructure, and auto financing could see meaningful momentum as credit demand picks up.

Liquidity Boost: CRR cut injects Rs 2.5 lakh crore

The RBI’s 100 bps reduction in the Cash Reserve Ratio (CRR)—rolled out in four tranches starting September—adds another layer of support.

This liquidity infusion of Rs 2.5 lakh crore equips banks with additional lending capacity, benefiting credit-dependent sectors such as: MSMEs, Infrastructure and Housing finance.

If the RBI introduces further measures in its upcoming MPC meeting (September 29–October 1, 2025), markets could get another leg-up on liquidity-driven optimism.

Fiscal Push: Tax cuts to boost consumption

On the fiscal side, the government’s personal income tax reduction puts more cash in consumers’ hands—critical ahead of the festive season.

Higher discretionary spending can benefit consumer durables, automobiles, travel, and retail.

For companies, this means a potential turnaround in topline growth as urban demand revives.

GST Cuts: Lower Burden, Higher Demand

Recent GST rate cuts across select segments complement the tax relief, making goods more affordable and spurring demand in sectors facing volume stagnation.

When combined with personal income tax cuts, this fiscal stimulus strengthens household purchasing power—creating a multiplier effect for domestic consumption.

The Big Picture: Tailwinds aligning for a revival

Monetary easing, fiscal stimulus, and liquidity support are converging at a time when markets have turned cautious. This alignment could drive earnings upgrades in H2 FY26, credit growth acceleration and an improved investor sentiment after a year of underperformance.

For investors, the muted market environment may not reflect the underlying potential. As policy measures gain traction, markets could be caught off guard by the strength of the earnings revival, especially if GDP growth targets of 7% are met.

Bottom Line:

The pieces are falling into place for a second-half equity market revival. With expectations running low, any positive surprise on earnings or policy could set off a rally, making H2 FY26 a period to watch closely for investors seeking early opportunities.

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