Sectors to focus on as RBI cuts repo rates after 5 years

In a significant policy move, the Reserve Bank of India (RBI), under the new Governor Sanjay Malhotra, has cut the repo rate by 25 basis points to 6.25%. This is the first rate cut by RBI in five years with the last rate reduction taking place in May 2020. 

RBI has projected the CPI to be at 4.8% for FY25 and 6.7 % for GDP for the same period. The rate cut will boost liquidity, encourage borrowing, and support economic growth, 

Several sectors will likely benefit from this RBI move, as several key sectors are directly affected by the rates set by RBI.

NBFC

Non-Banking Financial Companies (NBFCs) companies are directly impacted as they will get cheaper credit and lend them out at high rates and the biggest beneficiaries will be companies with fixed-rate portfolios or companies who lend out most of their loan at a fixed rate instead of variable. Some types of fixed-rate loans are Personal loans, Auto loans, and Consumer Durable loans

AUTO

The auto sector will have a direct impact as lower loan rates will encourage the middle class and the youth to take loans from affordable financing options, boosting demand for two-wheelers, passenger cars, and commercial vehicles . The auto sector will also benefit from increased capex plans as cheaper borrowing costs will lead to increased investments.

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REAL ESTATE

As lower rates lead to lower interest rates, property purchase will look more attractive and affordable for the buyers. Demand might increase for both new home projects and existing home as the EMI and the total loan amount will decrease. This will also create a ripple effect and demand for construction materials, furniture and home decore will also increase.

INFRASTRUCTURE

The infra sector relies heavily on project financing, and lower interest rates will reduce the overall price of the project, which will create more demand and an increase in construction activity will also increase jobs. Construction activity can have ripple effects on a lot of other sectors like cement, steel, heavy equipment, and transportation.

Written By Abhishek Das

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