Rate Cut Meets a Falling Rupee: Sensex Gains 500 Pts, Nifty Near 26,200 as RBI’s 25 bps Cut Lifts Markets

The domestic equity market staged a sharp recovery on Friday as the Sensex surged over 500 points and the Nifty moved close to the 26,200 mark, reversing early volatility that had been triggered by mixed global cues and ongoing foreign fund outflows. A decisive shift in sentiment came after the Reserve Bank of India (RBI) announced a 25-basis-point policy rate cut, a move that investors widely interpreted as supportive for economic activity and equity markets.

The trading session began on a cautious note, reflecting concerns around the weakening rupee, external uncertainties, and uneven signals from global peers. However, sentiment improved notably as the central bank’s growth-supportive action lifted expectations of stronger domestic demand, lower borrowing costs, and improving earnings momentum.

By 12:40 p.m., the benchmark Sensex was up 501.35 points or 0.59 percent at 85,766.67, while the Nifty climbed 158.55 points or 0.61 percent to 26,192.30. Rate-sensitive sectors led the rebound, supported by easing crude prices, firm Asian markets, and a decline in market volatility.

RBI’s 25-bps Rate Cut Turns the Tide

The top driving force behind Friday’s market rally was the RBI Monetary Policy Committee’s unanimous decision to reduce the policy rate by 25 basis points, bringing it down to 5.25 percent. A rate cut directly reduces borrowing costs for corporates and consumers, bolstering credit demand, liquidity, and economic activity — all of which tend to lift overall market sentiment.

Rahul Singh, Chief Investment Officer of Equities at Tata Asset Management, told Reuters that an improving earnings outlook is now being further supported by the RBI’s policy easing. He added that ahead of a likely U.S. rate cut next week, there is “valuation comfort for the Nifty, which is now trading at nearly 21x forward earnings.”

The strengthening outlook for credit growth, consumption, and margin improvements across rate-sensitive industries contributed meaningfully to Friday’s rebound.

 Also Read: RBI Cuts Repo Rate to 5.25%; Announces ₹1 Lakh Crore OMO & $5 Billion USD/INR Swap

Rate-Sensitive Stocks Gain Momentum

Following the policy announcement, buying interest surged in financial, banking, auto, and real estate stocks — categories that benefit most from the lower interest-rate environment.

• The Nifty Financial Services index gained 0.8%, reflecting optimism around improved loan demand and easing funding costs.

• The Bank Nifty advanced 0.5%, while the PSU Bank index climbed 0.8%, supported by expectations of better credit growth and stronger net interest margins.

• In the auto space, the index inched up 0.5%, aided by hopes of lower EMIs and improved vehicle affordability.

• The realty index rose 1%, as cheaper home loans typically revive property demand and project financing.

Among the Nifty50 stocks, Bajaj Finance, Infosys, and Shriram Finance featured among the top gainers, rising up to 2 percent. On the other hand, InterGlobe Aviation and Hindustan Unilever slipped as much as 3 percent, reflecting sector-specific pressures and profit-taking.

Crude Oil Softens, Supporting Sentiment

Another favourable tailwind for the market was the moderation in crude prices. Brent crude slipped 0.17 percent to USD 63.15 a barrel, a welcome relief for an import-dependent economy like India.

Lower crude prices tend to ease inflationary pressures, reduce input costs for sectors such as paints, chemicals, and logistics, and support broader macroeconomic stability. The combination of a rate cut and softer energy prices created a constructive backdrop for equities, helping indices recover swiftly from early losses.

Global Markets Show Strength

Global cues were largely supportive. Key Asian markets — including South Korea’s Kospi and China’s SSE Composite — traded in the green, reflecting resilience across major regional indices. U.S. markets, meanwhile, ended on a flat note overnight, providing a neutral backdrop for Indian equities.

While the global environment remains mixed, Friday’s firming sentiment across Asia offered an additional layer of stability for domestic investors navigating currency weakness and foreign outflows.

India VIX Declines, Boosting Risk Appetite

Adding to the bullish undertone was a decline in the India VIX, the market’s volatility gauge. The VIX fell 2.29 percent to 10.57, signalling reduced nervousness among traders and improved risk-taking capacity. A lower VIX typically corresponds with steady institutional flows and sustained buying interest, especially from domestic investors.

The easing volatility also suggests that the market has partially digested concerns around external headwinds and is now responding more positively to domestic macro triggers such as monetary easing and improving demand expectations.

A Day of Recovery After a Soft Start

Despite the strong midday rebound, the initial hours of trade were marked by caution. The combination of:

• continued foreign fund outflows,

• a weakening rupee, and

• mixed overseas cues

kept market participants on edge. However, the RBI’s policy action emerged as the single biggest pivot, shifting the narrative from caution to optimism.

Investors also took comfort in sectoral rotation driven by rate relief, falling crude, and improving global cues — helping the indices recoup losses and end firmly in the green during the mid-session.

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