RBI’s double bonanza: Can it spark the next rally in the Indian stock market?

Indian stock market bulls were buoyed after the country’s central bank delivered a surprise policy move last week, pushing the frontline indices to break out of their recent narrow trading range amid ongoing global trade tensions.

The RBI-led uptrend extended in today's trade (June 9) as well, with both frontline indices gaining nearly 0.70% each to the day's high, largely led by financials, as the sector attracted renewed interest from Dalal Street investors. Optimism grew that the latest policy moves would support credit recovery in the economy and lead to a rebound in banks’ earnings.

On Friday, the Indian central bank announced a deeper-than-expected 50 basis point cut in the repo rate to 5.5%, bringing it to a nearly three-year low, along with an unexpected 100 basis point cut in the CRR. These moves reflect the RBI’s shift in focus toward reviving the country’s growth engine after successfully bringing inflation under control.

The CRR cut surprised the Street, even though the RBI had already infused over ₹7 lakh crore of liquidity through OMOs and forex swaps since January 2025. These policy tailwinds, combined with domestic positives such as strong Q4 GDP growth and higher GST collections, are expected to drive market momentum in the near term.

However, experts said that the sustainability of the rally will depend on a further revival in earnings in the ongoing fiscal year to ease persistent valuation concerns.

Valuation still remains stretched across sectors

Following the better-than-expected March quarter numbers by India Inc., valuation concerns eased a bit but still remain elevated across several sectors and stocks, as earnings downgrades continue to outpace upgrades

According to domestic brokerage firm Motilal Oswal’s coverage universe, earnings estimate for 63 companies were upgraded by more than 3%, while those for 110 companies were downgraded by over 3%, indicating that downgrades continue to outnumber upgrades.

The Street is anticipating that Nifty 50 companies could deliver mid-teen earnings growth over the next two years, which analysts believe will be hard to achieve given the ongoing demand challenges, suggesting the downgrades likely to persist. 

Following a modest 1% year-on-year growth in EPS for FY25, Nifty 50 earnings estimate for FY26 and FY27 have been revised downward by 2% and 1.1%, respectively, to 1,135 and 1,314.

RBI’s stimulus may lift floors, but earnings growth needed to break ceilings: Experts

According to Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the monetary bazooka fired by the RBI on Friday will keep the market spirits alive in the near-term. But this is not sufficient to sustain the rally triggered on Friday. More important is the trend in earnings growth. Q4 results indicate better earnings growth for midcaps. But large and small caps continue to struggle. 

Vijayakumar believes that FY26 earnings are unlikely to reach mid-teen growth levels, which are necessary for the market to remain resilient and move meaningfully higher.

He added that the market needs clear signs of revenue and earnings acceleration to break out of its current range. In the absence of such indicators, the Nifty may only edge higher to a range of 24,500–25,500.

While abundant liquidity could support the downside, concerns over earnings are likely to cap any significant upside. On a positive note, he sees weak macroeconomic data from the US and China as supportive for emerging markets like India.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.