RBI Rate Cuts May Come to an End Amid Rising Oil Prices and Weakening Rupee: Expert Analysis

RBI Expected to Maintain Interest Rates in Upcoming Review Meeting

The Reserve Bank of India (RBI) is likely to maintain its interest rates in the upcoming review meeting, according to Ankush Jain, Director and Fund Manager at Steptrade Capital. In his assessment, the RBI will revise its inflation projections higher to about 5 percent, with an expected GDP growth outlook of 6.6 percent for FY27.

Jain expects that the revised inflation outlook will lead to no further cuts in interest rates from the RBI in the coming months. This is due to the impact of imported inflation, currency depreciation, higher shipping and logistic costs, margin pressure, and elevated operating expenses on Q1FY27 earnings. As a result, profitability will remain under pressure despite healthy revenue growth.

Energy Policy Crucial for India's Economic Growth

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Energy imports pose a significant structural burden on the Indian economy, with the country relying on imports for 85 percent of its crude oil and around 50 percent of its natural gas. Any rise in energy prices has an immediate impact on all sectors of the economy. Therefore, it is essential for the government to introduce favorable energy policies to boost the economy.

From both economic and policy standpoints, proper energy policies must be made to propel the economy of India forward, particularly in light of the country's growth trend and energy needs. The development of capex cycles for solar, green hydrogen, and storage is currently underway in many companies.

Risk-Reward Profile Remains Weak for FIIs

The risk-return equation for Foreign Institutional Investors (FIIs) in India may still be relatively unappealing in the immediate future due to high valuations and global uncertainties. However, the healthy demand in India, along with its investment cycle in infrastructure and growth factors, will continue to propel its earnings going forward.

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While artificial intelligence might boost profits, India's investment opportunity does not hinge entirely on AI-driven earnings. The country's superior long-term potential for growth, backed by domestic demand and positive demographics, makes it an attractive destination for investors.

Hard-Assets Investment Theme Gaining Traction in India

The hard-assets investment theme, including ports and power, is gaining traction in India. The NDA government's focus on infrastructure growth since 2014 has led to strong growth in these sectors due to strong government spending, private sector participation, rapid urbanization, and economic growth.

The power sector has seen good growth in recent years due to rising demand, rapid adoption of renewables, power grid modernization, and heavy investments in the T&D network. Indian ports have witnessed tremendous change over the last 10 years, with cargo handling capacity almost doubling to 2,762 MMTPA in 2024-25 from 1,400 MMTPA in 2013-14.

Q4 Earnings Growth Strong, Q1FY27 Earnings to Remain Moderate

During the fourth quarter of fiscal year 2026, companies in India experienced their best quarterly revenue growth over the past 12 quarters, indicating positive business performance in various sectors. However, margins were squeezed for several sectors due to higher cost pressures, pricing challenges, and higher operating expenses.

For Q1FY27 earnings, Ankush Jain expects moderate growth due to imported inflation, currency depreciation, higher shipping and logistic costs, margin pressure, and elevated operating expenses. As a result, profitability will remain under pressure despite healthy revenue growth.

Note: The growth rates are indicative and may vary based on individual company performance.