India's Financial Conditions Stable, Another Rate Cut Likely This Fiscal: Crisil

New Delhi: India's financial conditions remained stable in September, unchanged from August, a report said on Friday, adding that the RBI may reduce the repo rate in its upcoming meetings.

According to Crisil’s Financial Conditions Index (FCI), factors such as marginal improvement in bank credit growth and softer lending rates, a mild rise in the equity markets supported by Goods and Services Tax (GST) rationalisation, and stable crude oil prices hold the financial sentiment strong.

Although equity markets gained on average, they traded down in the second half of the month due to the imposition of tariffs on pharmaceutical drugs by the US and the potential hit to the IT sector from an unexpected hike in H-1B visa fees.

Despite the stability, the September FCI of -0.6 was lower than the average of -0.4 seen this fiscal.

According to the report, four factors put pressure on the FCI in September: Foreign portfolio investment (FPI) outflows, a weaker rupee, a moderating surplus in systemic liquidity and rising 10-year government security (G-sec) yield.

FPIs continued to move out of equities for the third month on continued concerns about the tariffs imposed by the US. Meanwhile, net inflows in the debt market moderated mildly. The FPI outflows put pressure on the rupee, which weakened to an all-time low against the dollar, the report noted.

Amid all the factors, the RBI may reduce the repo rate in its upcoming meetings.

"We believe the Monetary Policy Committee of the RBI will cut policy rates once more this fiscal, given the external pressures on growth and benign inflation," the report said.

The imposition of tariffs by the US and a slowing global growth are expected to impact India’s exports in the second half of fiscal 2026. Elevated global uncertainty may also impact private investments.

However, factors such as soft food inflation, repo rate cuts and tax relief measures are expected to provide some cushion.

The report projected that inflation is expected to remain benign.

The GST rationalisation is likely to provide some downside to inflation, but the overall impact will depend on the extent of the pass-through. Additionally, the US Federal Reserve (Fed)’s rate cuts will aid monetary space.

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