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Below the Quote on Daily Market Commentary for October 7th 2026 by Siddhartha Khemka - Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd

Indian equities are likely to remain cautious as the RBI’s shift towards a interest rate tightening cycle, while the rupee weakened 0.4% to ?96.7/US$, close to a record low. The RBI raised the repo rate by 25bp to 5.5% from 5.25%, its first hike since February 2023, and shifted its stance from neutral to calibrated tightening. While the rate hike was largely anticipated, the change in stance was unexpected and triggered a negative market reaction. The RBI also raised its FY27 GDP growth forecast by 40bp to 7.1% from 6.7%, while increasing its FY27 CPI inflation forecast to 5.2% from 5.0%, pointing to stronger growth but a higher inflation trajectory. The hawkish policy stance is likely to keep bond yields elevated, with the 10-year G-sec yield currently around 7.27% and expected to move towards 7.5% over the next six months. We expect 100bp of cumulative rate hikes over this tightening cycle, with the pace remaining data dependent, particularly on core inflation, broadening price pressures and second-round effects. With the Q2 results season approaching, stock- and sector-specific action is likely to increase, driven by earnings expectations and management commentary. Inflation, crude prices and the rupee will remain key monitorable, with the possibility of further rate hikes depending on the trajectory of core inflation and broader price pressures. On Wednesday, the Nifty 50 declined 0.8% to 22,603, while India VIX rose 2.1%, amid weak global cues and the RBI’s unexpected shift towards a tightening stance. Midcap 100 declined 0.6%, whereas Smallcap 100 gained 0.3%. PSU Banks and Media outperformed, while Metals, Realty and Auto were the key laggards.  Brent crude rose 1.2% to around US$102/bbl. Banking stocks rebounded despite the rate hike, as higher lending rates could support margins as loan books reprice, partly offsetting the near-term impact of higher FCNR deposit costs. On the policy front, the Cabinet approved a Rs10,000 crore SME Growth Fund to provide direct equity capital to small and medium enterprises. Indian auto retail sales rose 31.8% YoY to 25.37 lakh units in September, according to FADA, indicating healthy demand momentum. The government also approved the establishment of an Integrated Transport & Logistics Authority to strengthen research, planning and monitoring across the sector. Separately, the Ministry of Defence signed a Rs 661 crore contract with BrahMos Aerospace for Fire Control Systems and Launchers for Indian Navy ships, supporting the continued order momentum for domestic defence companies. The GST Council meeting is scheduled for Thursday, will be the one of the domestic triggers, while crude prices, the rupee and foreign flows remain key monitorable, with the December policy now firmly in focus.

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