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Consumption-focused sectors bore the brunt of the Reserve Bank of India’s (RBI) monetary tightening on Wednesday, with auto, consumer durables and realty stocks facing selling pressure as investors interpreted the policy move as the start of a higher borrowing-cost cycle. A higher repo rate eventually leads to higher equated monthly instalments (EMIs) or extended loan tenures on cars, homes, electronic goods and other big-ticket purchases, squeezing affordability, particularly for price-sensitive customers. Combined with weaker rural purchasing power amid a patchy monsoon and elevated food inflation, it could weigh on financed big-ticket purchases this festive season, said Ajitabh Bharti, co-founder of CapitalXB, a non-banking financial company. Stretched consumers The rate hike has arrived as discretionary players have already raised prices to offset rising input costs. Indian automakers have raised passenger-vehicle prices by around 2-5% across segments in 2026, while consumer-durables makers are preparing a third round of hikes as copper, steel, crude derivatives and freight costs remain elevated. Air conditioners, televisions, washing machines and refrigerators could become 5-8% costlier from October. Housing affordability is also stretched. Average residential prices across the top seven cities rose 7% year-on-year, according to Anarock Research. Higher home-loan rates could make buyers more selective and lengthen purchase timelines, particularly in price-sensitive segments, the research firm said. The previous year's goods and services tax (GST) cuts and strong demand for premium products have helped absorb price hikes so far. But higher interest rates could further squeeze consumers, according to experts. Higher for longer While the monetary policy committee’s repo rate hike from 5.25% to 5.50% was widely expected, governor Sanjay Malhotra’s stance of “calibrated tightening” has led experts to pencil in a rate increase of at least 50 basis points (bps) over the next two policy meetings through March. This means the market now expects borrowing costs to remain higher for longer, with no rate cuts in sight anytime soon. “We expect a total 75bps hike in this tightening cycle, including today’s move,” said Shrikant Chouhan, head of equity research at Kotak Neo. This sustained trend of rate hikes could have a greater bearing on borrowing and spending behaviour next year, said Anupam Vasdani, group chief financial officer at True Balance, a consumer lending platform. Lessons from the past Ergo, the Nifty Auto, Nifty Consumer Durables and the Nifty Realty shed around 1-2% on the day of the rate hike, despite already losing nearly 2-4% through the week before it. This breaks a typical pattern exhibited by these indices, according to Mint’s analysis of 11 RBI rate-hike episodes over the past 13 years. While the Nifty 50 and broader banking and financial services stocks fell on the day of the rate hike in six instances, auto, consumer durables and realty stocks rose on the policy day in most cases. However, such gains would typically follow a week of selling ahead of the policy meeting, when investors would become extra cautious amid tighter financial conditions. The Nifty 50 and the consumer-focused indices fell in six out of 11 episodes during the week before the hike, the analysis showed. This behaviour, particularly in consumer stocks, suggests that while investors tend to worry about the impact of higher rates on consumption ahead of the policy decision, rate-sensitive sectors can recover once the decision is announced. Of the six instances when the Nifty 50 fell on the day of a rate hike, it recovered those losses within a month in three cases. Rate-sensitive sectors, too, generally stabilized alongside the broader market after the initial reaction. However, consumer stocks failed to recover on the policy day this time, as markets braced for a dent in demand. History also suggests that rate hikes during the September-October festive period can be particularly challenging for these sectors. After the October 2013 hike, major rate-sensitive indices were lower a month later. Similarly, after the 50bps hike in September 2022, the Nifty Consumer Durables Index remained under pressure in the following month. Notably, in both cases, these sectors held up on the policy day before weakening in the weeks that followed. In other words, consumer-facing sectors have typically ended the month lower when rate hikes have coincided with the festive season, suggesting that higher borrowing costs can weigh on demand. This time, with markets already bracing for weaker consumption momentum, the historical pattern leaves the sector vulnerable to further pressure. “We expect consumers to become more selective this festive season rather than pull back significantly, with access to credit continuing to support festive spending,” said Vasdani.
document fetched 2026-10-08 02:57 · canonical https://livemint.com/market/stock-market-news/rbi-rate-hike-dampens-consumption-stocks-festive-cheer-11791372834578.html