RBI Raises Rates, Nifty Hits a 2026 Low, Then Ends the Week Higher

The RBI's Monetary Policy Committee raised the repo rate by 25 basis points to 5.50% on October 7, its first increase since February 2023, and changed its stance from neutral to calibrated tightening, according to reports on the policy statement. The rate decision was unanimous, while two members would have preferred to keep the stance at neutral. The Standing Deposit Facility rate is now 5.25%, and the Marginal Standing Facility rate and Bank Rate are 5.75%.

Inflation is the reason. CPI inflation rose to 4.8% in August from 4.5% in July, and the RBI expects headline inflation to average almost 5.8% over the next three quarters, citing higher food and fuel prices, crude volatility, a deficient monsoon and tighter global financial conditions. It also said core inflation is showing signs of broadening. The Governor signalled that the next move can only be a hike or a pause, which means rate cuts are off the table for now.

Growth data supports the 7.1% projection. The services PMI rose to a final reading of 55.2 in September, a three month high, from 54.1 in August, following the manufacturing PMI of 55.1 we covered last week. On the day, Nifty fell 0.76% to 22,603.05 and Sensex fell 0.59% to 72,638.71, though reports noted the hike was widely expected. PSU banks gained 1% and Bank Nifty slipped only 0.13%. The MPC minutes are due on October 21, and the next meeting is on December 2 to 4.

Last week's digest noted that Nomura had flagged two possible hikes before year end, at the October and December meetings. One has now happened. Whether December brings the second is the open question, and the RBI's own wording, hike or pause, is the thing to track.

Nifty 50 rose 98.50 points, or 0.4%, to 22,520.45 for the week ended October 9, and Sensex gained 562.63 points, or 0.8%, to 72,472.33, according to Upstox's weekly wrap. The Nifty Midcap 100 was flat, the Smallcap 100 gained 0.5%, and India VIX eased 0.6% to 14.37. The small weekly gain hides a rough path: from Tuesday's close to Thursday's close, Nifty gave up about 2.4%, before Friday's rebound.

Last week we noted that Nifty was sitting almost exactly on its 200 week moving average, near 22,605. This week's closes ranged from 22,232 to 22,776 around that level, which is what a market testing support looks like, noisy rather than decisive.

TCS reported its September quarter on October 8. Revenue from operations rose 11.2% year on year to Rs 73,188 crore and net profit rose about 15%, with an operating margin of 24%, according to Business Today. Outlets reported the profit figure slightly differently, between Rs 13,884 crore and Rs 13,934 crore, so we use the rounded Rs 13,900 crore. The stock closed 0.42% lower at Rs 2,075.25 on result day, and reports noted that margins stayed under pressure.

Separately, the US Labor Department said it would stop accepting new applications and stop processing pending ones under its Permanent Labor Certification (PERM) programme, used for green card applications, for eight companies reported to include TCS, Infosys, Wipro, HCLTech, Cognizant, Capgemini, Microsoft and Adobe, with the administration saying the aim is to prioritise American workers. TCS said the directive will not affect its US workforce strategy. Nifty IT still gained 1% for the week and led Friday's rally.

The 57th GST Council meeting on October 8 focused on administration rather than tax rates, unlike the rate rationalisation of the previous meeting. According to a published analysis of its recommendations, the Council proposed removing arrest powers, raising prosecution and penalty thresholds, easing input tax credit restrictions in specific areas, and moving towards automated refunds. These are recommendations, and they still need to be notified through law, rules or circulars before they apply. The same analysis notes that prosecution consequences remain under Section 132, so this is not a full removal of criminal liability.

Brent crude rose 2.4% for the week, touching $105.92 a barrel before closing at $104.42, on concerns about Middle East supply after attacks on Gulf shipping and in the Strait of Hormuz, and a hurricane threat to US offshore output. Prices eased on Friday after US President Trump said he would not order a resumption of strikes on Iran before the November 3 midterm elections. The rupee traded around 96.7 to the dollar, and rising global bond yields continue to pull money from emerging markets towards US Treasuries and the dollar.

Foreign investors remained net sellers, and domestic institutions absorbed much of it. Weekly totals for this week were not available when we wrote this, and the October 8 numbers are provisional. The pattern is what matters: foreign selling and domestic buying have both been steady for weeks, with crude as the swing factor.

Next week is the first full week of Q2 results, with HCLTech on Monday, Wipro, Tech Mahindra, HDFC Life, HDFC AMC and Nestle on Thursday, and the large private banks reporting on Saturday, October 17. September CPI and WPI inflation data also land, the first numbers after the RBI projected inflation rising to 6.0% in the December quarter.

The bigger story beyond next week is Jio Platforms' reported IPO. Reports citing Reuters say the subscription window is tentatively October 21 to 23, with listing expected on October 28. The issue is reported at about $3.8 billion, structured as a fresh issue with no offer for sale, and the price band has not been announced. Treat all of this as unconfirmed until the offer documents are filed.

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