The Reserve Bank of India (RBI) may raise its policy repo rate by 50–75 basis points in the current monetary cycle, driven by heightened macroeconomic headwinds and geopolitical uncertainty, according to a report released on Thursday, 1 October 2026. The projection, from Bandhan Life Insurance, signals that the central bank's rate decisions will be shaped primarily by domestic factors rather than external cues.

What Will Drive RBI's Rate Decision

According to the Bandhan Life Insurance report, any repo rate action by the RBI will be driven more by domestic inflation, growth dynamics, liquidity conditions, and financial-stability concerns than by the trajectory of the US Federal Reserve alone. This framing is notable — it suggests the RBI is calibrating policy with a degree of independence from global central bank signalling, even as cross-border capital flows remain volatile.

The report comes against a backdrop of elevated global uncertainty, with crude oil prices, Middle East disruptions, and shifting AI-driven corporate spending all adding to the complexity of the macro outlook.

Equity Market Outlook: Stock-Specific Over Index-Wide

'Elevated global uncertainty and relatively firm valuations are likely to keep the Indian equity market increasingly stock-specific,' the report stated. Companies with stronger earnings visibility and sustainable growth trajectories are expected to attract disproportionate investor attention in this environment.

The report forecasted that the Indian market is entering a phase where company-specific earnings resilience will matter as much as — if not more than — the broader macroeconomic backdrop. Investors, it said, are likely to differentiate more sharply across sectors based on growth prospects.

IT Sector Faces AI-Driven Earnings Pressure

The IT sector faces a particularly challenging near-term earnings environment, according to the report. Rapid AI adoption is reshaping corporate technology spending globally, potentially diverting budgets away from traditional IT services and limiting meaningful earnings upgrades until at least the second half of FY27.

This aligns with broader concerns about discretionary tech spending in key markets like the United States, where the Fed's rate trajectory remains uncertain. The report noted the Fed could deliver one to two additional rate hikes if inflation reaccelerates or labour-market conditions remain unusually tight.

Rupee and External Pressures

On the currency front, the report projected a managed and gradual rupee depreciation rather than sustained appreciation in the medium term. The Indian rupee (INR) is expected to remain under pressure from a higher oil import bill, the current account position, and broader global dollar strength.

'INR is likely to remain under pressure from a higher oil import bill, the current account position and global dollar strength. Capital inflows, including foreign currency non-resident bank deposits and FPI investments, can provide a useful buffer by strengthening India's external position and containing currency volatility,' the report noted.

However, the report cautioned that such capital inflows are more likely to act as a stabiliser than eliminate underlying structural pressures on the rupee.

Broader Macro Risks on the Horizon

The report flagged several macro risks that could weigh on India's economic outlook. Prolonged elevated crude oil prices could dampen domestic demand and strain India's balance of payments. Continued disruptions in the Middle East could affect sectors including chemicals and fertilisers, with supply-chain and pricing implications for the broader economy.

With global rates, oil prices, geopolitical developments, and AI reshaping corporate spending simultaneously, the report underscored that the macro environment has become multidimensional in ways that make blanket sector calls difficult. How the RBI navigates this complexity — and when it moves on the repo rate — will be closely watched by markets and policymakers alike.