RBI missing as Rupee crashes below 89
Calling the sharp fall in the rupee “a very important issue”, Bagga noted that 89 was a crucial psychological level that the RBI was widely expected to defend.
He added that the unusual currency move points to heavy FPI selling or a possible unwinding of Japanese carry trades, especially after Japan’s inflation spike raised the chances of a rate hike in December.
A weak rupee, combined with India’s FPI tax and global uncertainty, makes the market less attractive to foreign investors, he warned.
Rate cuts are now unlikely
Bagga said the currency crisis will reduce the chances of an RBI rate cut in December as the central bank will avoid further pressure on the rupee. He also pointed to the risk that imported inflation could rise if the currency remains unstable.
The US-India trade deal is still the biggest trigger
Bagga believes a breakthrough in the US-India trade deal could spark a strong market rally. He also highlighted concerns that India was “being scrutinized” by the punitive 25% tariff despite reduced Russian oil purchases.
According to him, a resolution would especially help exporters who have already missed the Christmas period due to delays.
Tax cuts and fiscal pressure are needed to stimulate growth
He repeated that:
- India needs fiscal stimulus
- RBI eventually has to cut interest rates
- Wealth-creating sectors are currently overloaded
- Private sector banks remain an important opportunity, but credit growth depends on the revival of business investment
- Private banks remain attractive
Bagga remains bullish on private sector banks, pointing to strong balance sheets and adequate capital buffers. However, a recovery in corporate lending is crucial to revive broader growth momentum.
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