Bandhan Life's Avinash Agarwal: RBI May Hike Repo Rate by 50-75 bps This Cycle

According to Avinash Agarwal, Senior Vice President & Head – Equity at Bandhan Life Insurance

Broader-market valuations have eased from the very expensive levels seen a few years ago but remain slightly above their long-term average.

Given the current macro headwinds and slightly elevated valuations in the broader market, he believes India is likely to remain predominantly a bottom-up market.

FCNR(B) inflows provide the Reserve Bank of India (RBI) with greater capacity to manage volatility, but they do not eliminate structural pressures arising from oil imports, the current account deficit and global dollar strength, he said in an interview with Moneycontrol. These inflows are best viewed as a stabilizer rather than a game changer.

Do you expect the RBI to also raise interest rates, particularly in line with the Fed's policy path?

The RBI is unlikely to mirror the Fed's rate path, and any policy action will primarily be based on the trajectories of domestic inflation, growth, liquidity, and financial stability. Any rate action would likely be driven more by local factors than by Fed hikes alone. Based on these factors, we feel that the RBI may hike the policy repo rate by 50-75 bps in this cycle.

What are the major reasons behind the Fed's rate hike, apart from inflation concerns? And do you expect a couple more rate hikes from the Fed?

Apart from inflation, the Fed's rate hikes have been driven by a resilient labour market, strong consumer spending, robust economic growth, and the need to prevent inflation expectations from becoming entrenched.

As for the outlook, we expect at most one to two additional hikes only if inflation reaccelerates or labour market conditions remain unusually tight. Otherwise, the Fed is likely to remain data-dependent and keep rates restrictive for longer rather than pursue an aggressive hiking cycle.

Do you think an upgrade to IT earnings estimates is unlikely even in H2FY27?

I think the IT sector is going through a transition, and right now, it appears unlikely that there will be an upgrade in earnings estimates. This is because AI spending is increasing across most companies, diverting some of the spending previously directed towards IT services. So, as of now, visibility for an upgrade in IT earnings estimates remains low.

Do you rule out a sharp market rebound until oil prices and US bond yields ease, despite strong Q1FY27 earnings?

I think the macro-overhang, if prolonged, could start impacting demand growth in India, which we are watching closely. The outlook remains uncertain, especially with the US midterm elections approaching, which could influence the US war-related stance and commentary. The longer the situation persists, the greater the negative repercussions, particularly for import-dependent India. Higher oil prices could affect the balance of payments, while disruptions in the Middle East could affect other sectors such as chemicals and fertilisers. We need to monitor developments closely, as markets will react to the evolving situation in the Middle East.

Are you bullish on the hospital sector?

Yes, we are positive on the hospital sector, as India remains highly underpenetrated in terms of beds per thousand people, creating a clear supply gap. We believe the sector's structural story remains intact. With more organised players entering and expanding rapidly, the sector continues to grow despite its capex-heavy nature. Significant private equity investment has also flowed into the sector over the past few years, supporting faster growth compared with many other sectors. Overall, the structural growth story for the hospital industry remains strong, and we continue to remain positive on the sector.

Do you agree that India has now become a predominantly bottom-up market?

I think so. Broader valuations have eased from the very expensive levels seen a few years ago but remain slightly above their long-term average. Given current macro headwinds and slightly elevated valuations in the broader markets, I believe the market will continue to remain bottom-up. Certain segments which have higher growth visibility deserve higher multiples. This differentiation has continued over the past few years and is likely to persist. Money will continue flowing towards companies with greater growth visibility. Therefore, India is likely to remain predominantly a bottom-up market.

Do you think capital flows into the economy, including FCNR(B) deposits and FPI investments, will help contain the rupee's depreciation?

The RBI's FCNR(B) scheme has substantially strengthened India's external position by attracting over USD 127 billion of deposits, boosting forex reserves and reducing the risk of disorderly rupee depreciation.

However, these inflows are best viewed as a stabiliser rather than a game changer. While they provide the RBI with greater capacity to manage volatility, they do not eliminate structural pressures from oil imports, the current account deficit, and global dollar strength.

Capital inflows should help contain INR volatility and slow depreciation, but the medium-term outlook remains one of managed, gradual rupee weakening rather than sustained appreciation.