- RBI left the repo rate at 5.25% – a unanimous, neutral stance.
- Sensex and Nifty closed the week higher despite a global sell‑off.
- Indian rupee posted its strongest weekly gain since Jan 2023 (+1.4%).
- Cigarette makers rallied up to 13% after passing tax hikes to consumers.
- Bank‑to‑REIT lending approval could unlock fresh capital for real‑estate assets.
You missed the RBI’s rate‑hold signal, and now your portfolio could be under‑exposed.
RBI’s Unchanged Repo Rate: What It Means for Indian Equities
The Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate at 5.25%, labeling the stance “neutral.” A repo rate is the interest rate at which the central bank lends to commercial banks; keeping it steady signals that inflation is under control and that the RBI does not see a need to tighten or loosen monetary policy.
Governor Sanjay Malhotra projected CPI inflation at 2.1% for FY26, comfortably within the 4% medium‑term target. This outlook reassured investors that price pressures remain contained, allowing equities to breathe without the threat of a rate hike.
Historically, a neutral stance after a series of hikes has preceded a period of equity outperformance in India. In mid‑2022, the RBI held rates steady for three consecutive meetings, and the Nifty 50 rallied 12% over the subsequent quarter as liquidity remained ample.
Currency Upside: Rupee’s Best Week in Over Three Years
The rupee closed at 90.66 per dollar, down 0.33% on the day but up 1.4% for the week – its strongest weekly move since January 2023. The appreciation was fueled by reduced corporate dollar demand and the RBI’s clear policy direction, which eased near‑term currency worries.
For foreign investors, a stronger rupee translates into lower conversion costs when repatriating returns, enhancing the relative attractiveness of Indian assets versus other emerging markets where currencies are weaker.
Cigarette Sector Surge: Tax Pass‑Through and Value Buying
ITC, Godfrey Phillips, and VST Industries jumped as much as 13% after announcing price hikes to offset a new excise tax effective February 1. The sector’s ability to pass on costs is a classic example of pricing power in a regulated industry.
While the broader market’s mid‑cap and small‑cap indices slipped, the tobacco segment’s rally highlighted a divergence where defensive, cash‑flow‑rich stocks outperformed amid macro uncertainty.
Real‑Estate Funding: Banks Allowed to Lend to REITs
The RBI’s clarification that banks can extend credit to Real Estate Investment Trusts (REITs) is a game‑changer. REITs have struggled for long‑term funding, relying heavily on public bond issuance. Bank financing can lower their cost of capital, boost dividend yields, and attract institutional investors seeking stable income.
Comparatively, Tata Realty and Adani Enterprises have already positioned themselves to benefit from this policy shift, with both companies eyeing increased leverage to fund upcoming projects.
Global Context: Diverging Trends and the Indian Edge
While Wall Street sold off and European markets slipped, Indian equities displayed resilience. The MSCI All‑Country World Index is on track for its worst weekly performance since November, down 1.6%, yet the Nifty 50 posted a modest 0.20% gain.
This relative strength can be attributed to the RBI’s policy certainty, a firmer rupee, and sector‑specific tailwinds such as the REIT funding approval and tobacco price adjustments.
Investor Playbook: Bull vs. Bear Scenarios
Bull Case: The neutral stance keeps borrowing costs low, supporting corporate earnings. A stronger rupee improves foreign inflows, while REIT financing reforms unlock a new income stream. Expect continued outperformance in financials, real‑estate, and defensive consumer staples like tobacco. Portfolio tilt: increase exposure to banks, REITs, and high‑margin consumer goods.
Bear Case: Global risk aversion could spill over, pressuring Indian equities despite domestic stability. If inflation re‑accelerates, the RBI may be forced into a hike, unsettling the rupee and credit markets. Portfolio tilt: reduce leveraged exposure, hedge currency risk, and stay defensive with cash or short‑duration bonds.