Indian equity markets are poised for a positive opening on Friday, December 5, as investors await a crucial monetary policy announcement from the Reserve Bank of India (RBI). The central bank's decision is clouded by conflicting signals from robust economic growth and a rapidly depreciating rupee, leaving market participants divided on the outcome.
Market Indicators Point to Positive Start
Early market signals suggest a gap-up opening for the benchmark indices. The Gift Nifty futures were trading at 26,184.5 points as of 6:55 a.m. IST, indicating that the Nifty 50 index will open above its previous close of 26,033.75 points. The RBI's monetary policy committee decision is scheduled for 10:00 a.m. IST. This anticipation comes after a Reuters poll of economists had forecast a 25-basis-point reduction in the policy repo rate.
The Growth vs Inflation Conundrum
The case for a rate cut has become more complex following recent economic data releases. India's economy expanded at its fastest pace in 18 months during the July-September quarter, powered by strong consumer demand. Concurrently, retail inflation dropped to a record low in October. This combination of high growth and low inflation initially bolstered expectations for monetary easing.
However, analysts note that the impressive growth figures have tempered those expectations. "The monetary policy decision and commentary will be crucial, especially for rate-sensitive banks as rate cut probability has reduced post the robust growth data," stated Vinod Nair, Head of Research at Geojit Financial Services.
Rupee Weakness Adds to Policy Complexity
Complicating the RBI's decision is the Indian rupee's performance. The currency has touched fresh lows against the US dollar in recent trading sessions. This weakness is attributed to a widening trade deficit, subdued foreign capital inflows, stalled trade negotiations with the United States, and persistent selling of Indian equities by foreign portfolio investors.
Santanu Chakrabarti, an analyst at BNP Paribas Securities, highlighted this factor, noting, "The sharp drop in the rupee in the last few days could only persuade the central bank in favour of policy caution." A rate cut could potentially exacerbate the rupee's decline by making Indian assets less attractive to yield-seeking foreign investors.
Market Performance and Outlook
Despite the weekly dip, where the Nifty fell 0.7% and the Sensex dropped 0.5%, the broader market trend for the year remains strongly positive. Both benchmarks have gained over 9% in 2025. Major brokerages project further upside, forecasting index gains of 10% to 15% by the conclusion of 2026. The markets witnessed some profit-taking this week after scaling record highs last week for the first time in 14 months.
Some market observers suggest that a surprise rate reduction could still trigger a short-term market rally. They argue that such a move would further boost demand, which has already received support from recent government tax cuts. The final decision now rests with the RBI, whose commentary on growth, inflation, and currency stability will be scrutinized as closely as the rate action itself.
