In an interview with Moneycontrol after the RBI policy meeting, Joseph Thomas, Head of Research at Emkay Wealth Management, said that there is very little chance of any more interest rate cuts for the remainder of the fiscal year.
This is because, in an otherwise capital-scarce economy, the present policy rate—which is as low as 5.25 percent—is rather near to both the optimum cost of capital and the expected rate of retail inflation, he said.
The Dollar-Rupee exchange and OMOs are two liquidity measures that the central bank has previously outlined. These steps demonstrate the central bank’s commitment to improving money market conditions by implementing suitable liquidity measures. Therefore, he thinks the markets will not have a liquidity problem in the future.
Do you still anticipate that the RBI would lower interest rates at its next meetings in 2026, or will there be a year-long hiatus?
For the remainder of the fiscal year, the likelihood of any more interest rate reductions is quite low. This is due to the fact that, in an otherwise capital-scarce economy, the present policy rate, which is as low as 5.25 percent, is rather near to both the optimum cost of capital and the expected rate of retail inflation. According to the most recent CPI data, retail inflation is as low as 0.25 percent. Additionally, GDP growth for Q2FY 26 was as high as 8.20 percent.
The very optimistic growth figures do not allow much opportunity for soft policy, even while low inflation makes room for rate reduction. Consequently, any further reduction would result in a decline in the growth rate. The Q3 figures will make the negative external environment after the tariff and its effects more apparent.
The Q3 figures will also show the beneficial effects of policies like the rationalization of the GST. The rate of inflation may progressively rise when it is at multi-year lows. The likelihood of more rate reductions is still minimal, at least until the conclusion of current fiscal year, given these circumstances.
Do you think the RBI will take any further liquidity measures in the future?
The central bank has previously announced liquidity measures via OMOs (Open Market Operations) and the Dollar-Rupee exchange in its most recent policy release. These steps demonstrate the central bank’s commitment to improving money market conditions by implementing suitable liquidity measures. Similar actions should continue till the end of FY26.
Even when a negative global climate jeopardizes stability and development, liquidity is crucial. We should be grateful that these actions were made public as soon as the current CRR decrease was fully implemented by November 25. The markets will not have a problem with liquidity in the future.
Do you believe that the devaluation of the rupee is not a problem for the central bank?
The Rupee’s slow devaluation will not worry the central bank too much. Any speculative assault on the currency is something that central banks dislike. The Rupee will have to determine its true value via the interaction of supply and demand variables, even if the central bank may use currency intervention to deliver dollars to the market. A strong Rupee is not supported by trade, but if US interest rates continue to decline, investment flows into the local market may.
Given the improved economy, do you think the surge in modern technology equities will continue in 2026?
The term “new age technology” refers to businesses that focus primarily on artificial intelligence and associated architecture. If you look at NASDAQ, the market has risen excessively, mostly due to the valuations of a small number of businesses that deal with electronic chips, artificial intelligence, etc. The NASDAQ’s P/E is between 29 and 30. When investing, one should be mindful of the possibility that such high values can lead to abrupt drops.
Do you believe that starting a slow accumulation in the IT services industry is appropriate at this time?
Due to a number of variables, the IT services sector provides outstanding value, with a mix of big size and mid market firms. The most important aspects include the local enterprises’ ability to weather several storms, such as Y2K, the US slowdown, the Great Recession, and the devaluation of the Rupee, as well as the increased degree of company offshorization and diversification in light of AI, among other things.
The number of IT services firms will increase in wealth. Lastly, when it comes to their commercial orientation, these organizations are much more flexible than IT product companies.
What do you anticipate from the Fed Chair’s remarks next week, apart from the anticipated rate cut?
Fundamentally, the Fed is ready to lower interest rates once again. The need to lower rates will become more apparent as we gather more and more data, even if there is a halt. The last time, the government shutdown caused a lack of data, which meant that the Fed and the markets had relatively few real data points. This time, it will be possible to draw comparatively more conclusions from the figures.
Do you think the equities markets will perform much better in 2026 than they did in 2025?
For the last year or so, investors have received no returns from domestic stocks. However, if you examine the results for three and six months, there are indications of progress. These days, a lot of people are pessimistic about the markets. When such negativity accumulates beyond a certain point, turnaround often occurs.
Although the economy is solid on a fundamental level, the previous six quarters have seen a significant decline in profitability. There may be a resurgence, but we have most likely reached the bottom. Good markets in the future would be supported by low interest rates, plenty of liquidity, tax rationalization that encourages spending, and a significant amount of public capital expenditures.
