The benchmark equity indices of India came out of their eight-session fall on Wednesday, emerging as second-best performing market in Asia after Philippines as several measures announced by the Reserve Bank of India (RBI) boosted the sentiment even though it kept the repo rate unchanged.
Both the Nifty 50 and the Sensex closed 0.9% higher at 24,836.30 and 80,983.31 respectively. Broader indices also rose. BSE Midcap ended 0.9% higher at 45,325.31 and BSE small cap was 1.2% higher at 52,798.21. In the eight-session fall before this, Nifty and Sensex had fallen nearly 3%.
Key RBI measures fueling the financial sector rally
Wednesday’s rise was driven by sharp rise in the shares of HDFC Bank, Kotak Bank, and Axis Bank as the central bank announced a raft of banking sector reforms including a proposal for removing cap on overlap in the businesses undertaken by a bank and its group entity, a framework for banks to finance acquisitions by Indian corporates, and proposed to increase IPO financing limit to Rs 25 lakh per person from Rs 10 lakh earlier.
Because of this, the Nifty Bank closed 1.3%. The gains were seen across sectoral indices. Among the top gainers were, BSE Utilities, BSE Telecommunication, BSE Realty, and BSE Healthcare. Swapnil Aggarwal, Director at VSRK Capital, said the decision provides stability to equities, and rate-sensitive segments such as banking, realty, and auto are likely to consolidate rather than show sharp moves.
Prashanth Tapse, senior VP (Research), Mehta Equities said: “Although the repo rate was unchanged, the RBI’s governor’s optimism with regards to softening inflation and upgrading the growth prospectus for FY26 boosted investors’ sentiment. The central bank’s move to increase limits on lending against shares, reducing risk weights for NBFCs for infrastructure projects, and licensing of new UCBs provided a major fillip to the market and fuelled a rally in banking stocks.”
FIIs, however, continued to remain sellers for eighth consecutive session and net sold equities worth Rs 1,545.08 crore, NSE data showed while DIIs net bought shares worth Rs 2,862.07 crore.
Expert Outlook: Caution amid policy continuity and global risks
For banks and NBFCs, the impact remains neutral, since borrowing costs will not see any near-term change, retaining steady lending margins, Aggarwal said and added that importantly, affordable borrowing should continue to support consumption during the festive months and should be positive for discretionary equities. “However, with global uncertainties from oil price volatility to shifting FII flows, investor sentiment is expected to remain cautious, adopting more of a wait-and-watch approach,” he said.
Sonam Srivastava, founder and fund manager at Wright Research PMS said for markets, the status quo was largely priced in, but the tone of vigilance suggests rate cuts are unlikely before late 2025 or even 2026. “Bond yields may stay range-bound, while equities should take comfort in policy continuity,” she said and added that rate-sensitive sectors like autos, real estate, and financials could benefit at the margin, but the real drivers for the next leg of the rally remain global liquidity trends and corporate earnings momentum.
Vijay Gour, research analyst, at Mirae Asset ShareKhan noted the RBI has revised the GDP growth forecast for FY26 upward to 6.8% from the earlier estimate of 6.5%. “This optimistic outlook is underpinned by a sharp downward revision in inflation projections, with FY26 inflation now expected at 2.6%, compared to the earlier 3.1%, driven largely by easing food prices,” he said and added the RBI appears to be adopting a wait-and-watch approach to carefully assess global and tariff-related developments before making any future adjustments.