Indian equities enter another crucial week with the Reserve Bank of India’s (RBI) monetary policy decision, elevated crude oil prices, global bond yields and the start of the corporate earnings season likely to determine the direction of the market.
The RBI’s six-member Monetary Policy Committee (MPC) will meet from October 5 to 7, with its decision due on Wednesday. A majority of economists and bankers polled by PTI expect a 25-basis-point increase in the repo rate to 5.50 per cent, which would mark the first hike since February 2023.
The central bank has held the repo rate at 5.25 per cent through its last four policy meetings after cutting rates during 2025. Economists said rising inflation, higher energy prices and a shift towards tighter monetary policy by major global central banks had strengthened the case for a hike.
Retail inflation accelerated to an eight-month high of 4.82 per cent in August from 4.45 per cent in July and has remained above the RBI’s 4 per cent target for three consecutive months.
The prospect of tighter policy comes as crude oil prices remain above $100 a barrel, raising concerns over imported inflation and India’s external balances. Analysts also expect the RBI to revise its inflation outlook upwards amid elevated energy prices and broader price pressures.
Aditi Nayar, chief economist and head of research and outreach at ICRA, said the recent rise in crude prices could push up retail prices of petrol and diesel and lead to an upward revision in the consumer price inflation forecast.
Several economists expect the tightening cycle to extend beyond October. Participants in the poll broadly see at least two rate increases in the 2026-27 financial year, with some expecting two to three hikes.
The policy decision will be closely watched by equity investors because higher interest rates can affect borrowing costs, liquidity and the appetite for riskier assets.
Markets already under pressure
The rate decision comes after Indian equities suffered their eighth consecutive weekly decline.
The Sensex lost 1,986.04 points, or 2.68 per cent, last week, while the Nifty fell 718.55 points, or 3.10 per cent. In September, the Sensex declined 4,476.98 points, or 5.81 per cent, and the Nifty dropped 1,459.95 points, or 6 per cent.
Reuters reported on October 1 that Indian benchmark shares had posted their eighth straight weekly loss, the longest such losing run in 25 years, as foreign selling and concerns over oil and the global financial environment weighed on sentiment.
Foreign portfolio investors have been a major source of pressure. The Economic Times reported on October 4 that foreign portfolio investors sold more than Rs 25,000 crore of Indian equities in September, their biggest monthly outflow in six months, amid rising crude prices, higher US bond yields and a weaker rupee.
Global bond yields are expected to remain another key determinant of risk appetite. A moderation in US Treasury yields could make emerging-market assets more attractive, while another rise could encourage investors to favour US assets over markets such as India.
The minutes of the US Federal Open Market Committee (FOMC) meeting will also be watched for clues about the extent of support among US policymakers for further monetary tightening after the September rate increase.
TCS earnings kick off corporate season
The policy decision will coincide with the beginning of the September-quarter earnings season, with Tata Consultancy Services (TCS) scheduled to announce its results on October 8.
Retail major DMart is also among the companies due to report results this week.
Mint reported on October 4 that TCS’s results would be particularly important for investors because the information technology sector has been grappling with weak client spending and the impact of artificial intelligence-led productivity gains. The report noted that investors would look for signs that large deal wins are translating into revenue growth and whether client spending is beginning to improve.
TCS had reported only 0.4 per cent sequential revenue growth in constant-currency terms in the first quarter, despite securing $9.5 billion in total contract value, according to the Mint report.
The earnings season could therefore provide another important signal for the market, particularly after the Nifty information technology index fell sharply in September.
Inflation, growth and liquidity in focus
The RBI’s policy stance will also depend on the balance between inflation and economic growth.
Economists in the poll expect the central bank to consider an upward revision to its inflation forecast, while several expect a higher growth projection because economic activity has remained stronger than anticipated.
Radhika Rao, senior economist and executive director at DBS Bank, expects a slight upward revision to the RBI’s growth forecast to above 7 per cent.
The central bank had projected real gross domestic product (GDP) growth for 2026-27 at 6.7 per cent in its August policy review.
Economists are divided on the policy stance, with views ranging from no change to calibrated tightening and withdrawal of accommodation. A majority, however, expect the RBI to adopt a more hawkish tone even if the rate decision does not meet the expectations of those calling for an increase.
Liquidity management will also remain on the radar, with economists expecting the central bank to continue using variable rate reverse repo operations, open market operations and foreign exchange swap operations to manage surplus liquidity in the banking system.
For investors, the immediate question is whether the RBI’s response to rising inflation and global monetary tightening will reinforce the pressure already created by crude, bond yields and foreign selling — or provide some clarity after weeks of market weakness.
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