If the RBI Keeps Cutting Interest Rates, These 5 Stocks Could be Big Winners

Global central banks, including the US Federal Reserve, have begun to cut interest rates. Emerging markets (EM) stand to benefit from a flow of funds moving away from advanced economies.

With the upcoming Trump Presidency and the US continuing its lower-rate stance, the stage is set for a prolonged period of easy monetary policy. This is expected to encourage investments in EMs like India.

The Reserve Bank of India (RBI) is likely to follow suit, shifting its policy stance to neutral and potentially cutting rates by 25-50 basis points starting next year.

This shift comes on the back of a spike in Consumer Price Index (CPI) inflation, being largely driven by transient food price increases. As inflationary pressures ease, the RBI is expected to begin its rate-cutting cycle, further supporting economic growth.

This shift could unlock growth opportunities across diverse industries, from housing finance to real estate and discretionary retail.

The housing sector, in particular, stands to gain from these anticipated rate cuts, as lower borrowing costs make home loans more affordable for consumers.

This could unlock demand in both residential and commercial real estate, boosting the broader economy.

Apart from housing, lower borrowing costs could benefit infrastructure, banking and consumer goods companies, with easier access to credit fuelling growth.

In infrastructure, reduced financing costs could accelerate projects, while in banking, a more favourable rate environment could boost retail loan demand. Consumer sectors linked to discretionary spending might also see increased sales as affordability improves.

Although well-known names like HDFC Bank, ICICI Bank, SBI, Maruti Suzuki, Tata Motors, Titan, and Hero MotoCorp are poised to gain from the rate cuts, there are also opportunities beyond these giants.

With cheaper financing and stronger demand, a wide range of companies are poised for growth. Keeping this in mind, we highlight five stocks that are well-positioned to thrive in the evolving economic landscape, offering attractive investment opportunities.

#1 Aavas Financiers

At the top of our list is Aavas Financiers.

Aavas Financiers specializes in affordable housing finance, catering primarily to first-time homebuyers in semi-urban and rural areas. With a niche focus and strong underwriting practices, the company has built a solid reputation as a reliable lender.

Aavas Financiers operates in a space where interest rate movements can significantly influence its business dynamics.

For its customer base-primarily individuals in the affordable housing segment-loan affordability is a crucial factor.

A reduction in interest rates not only lowers their borrowing costs but also makes housing loans more accessible, potentially driving demand and enhancing Aavas' market presence.

At the same time, lower funding costs can improve Aavas' net interest margins (NIMs), giving the company a dual advantage.

Aavas Financiers Financial Snapshot (2020-24)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Net Interest Margin (%)	8.16%	7.71%	8.23%	8.28%	7.91%
Net Profit Growth (%)	0.41%	0.16%	0.23%	0.21%	0.14%
Return on Assets (%)	3.75%	3.49%	3.57%	3.51%	3.28%
Return on Equity (%)	12.72%	12.93%	13.77%	14.32%	14.13%

Source: Equitymaster

However, the company's growth metrics have been relatively modest over the last five years.

Between 2020 and 2024, the company maintained stable profitability metrics, with Return on Equity (RoE) improving consistently, peaking at 14.32% in FY23.

However, the net interest margin and return on assets showed slight declines in FY24, indicating some pressure on operational efficiency.

Looking ahead, Aavas is expanding its branch network in underserved regions and developing partnerships with builders to enhance its distribution channels.

The company plans to increase its penetration in the rural housing finance market, maintain low NPAs through strong credit appraisal processes, and explore digital solutions to streamline loan processing and customer service.

To know more about the company, check out its financial factsheet and latest financial results.

#2 Bank of Baroda

Next on our list is Bank of Baroda.

Bank of Baroda is one of India's largest public sector banks, with a strong retail presence, especially in housing loans.

In recent years, it has seen impressive growth, with advances rising over 50% in five years and a significant improvement in asset quality.

Notably, the bank has reduced its Net NPAs by one-third. Its international footprint is also growing, with 10% of its total deposits sourced from overseas operations.

BOB's RoE has quadrupled, and its capital adequacy ratio remains strong. Between 2020-2024, sales and net profit have posted a 5-year CAGR of 4.4% and 0.6%, respectively.

However, the bank faces short-term challenges, including intense competition in deposit mobilization and pressure on margins due to higher funding costs and slower growth in current and savings accounts (CASA).

RBI's anticipated interest rate cuts could boost BOB, particularly in housing loans. Mainly because lower rates would drive higher demand. The reduced borrowing costs would improve the bank's net interest margins.

This, combined with BOB's ongoing efforts to enhance operational efficiency and expand its digital lending platform, positions the bank well for long-term growth.

Bank of Baroda Financial snapshot (2020-2024)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Net Profit Growth (%)	-13.33%	54.31%	429.63%	90.75%	25.34%
Advances Growth (%)	45.91%	2.36%	10.24%	20.87%	13.01%
Deposits Growth (%)	46.22%	2.33%	8.02%	14.77%	9.49%
Return on Equity(%)	1.63%	1.91%	8.84%	14.92%	16.38%

Source: Equitymaster

Bank of Baroda has faced some short-term challenges, such as moderating advances growth and pressures on earnings.

On the other hand, the bank's solid operational foundation and its efforts to reduce reliance on bulk deposits put it in a good position for the long term.

To know more about the bank, check out its financial factsheet and latest financial results.

#3 Escorts Kubota

Third on our list is Escorts Kubota.

Escorts Kubota is an automobile company with operations spanning three key business segments: agricultural machinery (78% of total sales), construction equipment (12%), and railway equipment (10%).

The company's product portfolio is tailored to meet the needs of farmers in India and other emerging markets, contributing to its leadership position in agricultural machinery.

A reduction in interest rates will make agricultural loans more affordable, directly benefiting farmers, Escorts' primary customer base.

Additionally, cheaper financing for construction and industrial equipment could boost sales in these segments. For Escorts, lower borrowing costs also mean potential savings on working capital and expansion financing.

Escorts Kubota Financial Snapshot (2020-24)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Revenue Growth (%)	-7.31%	21.52%	3.87%	17.47%	5.60%
Operating Profit Margin (%)	13.08%	17.53%	15.50%	12.07%	17.01%
Net Profit Margin (%)	8.12%	11.87%	9.75%	7.26%	11.40%
Return on Capital Employed(%)	21.09%	28.61%	15.96%	10.74%	16.29%
Return on Equity (%)	16.32%	21.48%	11.68%	8.08%	12.10%

Source: Equitymaster

The business has been on a strong growth trajectory, driven by rising exports and deeper penetration in southern and western markets.

Sales have grown at a 5-year CAGR of 7.8%, while net profits have more than doubled in value during this period.

The RoCE and RoE have been rangebound, averaging at 18.5% and 13.9% during the same period.

Looking ahead, Escorts Kubota is poised to leverage RBI's anticipated interest rate cuts, which could spur rural credit demand and infrastructure investments.

These developments would enhance affordability for farmers and construction firms while reducing working capital costs for the company.

To sustain its growth momentum, Escorts Kubota is expanding its product offerings, including advanced tractors and hybrid construction equipment.

The company is also exploring electric and autonomous technologies, increasing production capacity, and partnering with state governments for rural mechanization programs.

To know more about the company, check out its financial factsheet and latest financial results.

#4 Kalyan Jewellers

Fourth on our list is Kalyan Jewellers.

Kalyan Jewellers is a leading jewellery retailer in India, with a strong presence in both urban and semi-urban markets.

Known for its wide range of gold, diamond, and platinum offerings, the company has established trust and brand loyalty among customers.

RBI's potential rate cuts could further support Kalyan's growth by increasing consumer purchasing power.

Lower interest rates will boost disposable incomes and consumer sentiment, encouraging discretionary spending on jewellery.

Furthermore, reduced borrowing costs for Kalyan will enable it to expand its store network and manage inventory more efficiently, both critical for scaling operations.

Kalyan Jewellers Financial Snapshot (2020-24)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Revenue Growth (%)	3.40%	-15.10%	26.20%	30.10%	31.80%
Operating Profit Margin (%)	7.00%	8.00%	8.00%	7.00%	7.00%
Net Profit Margin (%)	1.40%	-0.10%	2.10%	3.10%	3.20%
Return on Capital Employed(%)	28.50%	15.60%	20.90%	25.40%	27.90%
Return on Equity (%)	6.60%	-0.20%	7.10%	11.90%	14.30%

Source: Equitymaster

Kalyan Jewellers has delivered an impressive performance, achieving a robust 5-year compound annual growth rate (CAGR) of 13.7% in sales.

The company has made a significant turnaround, transitioning from losses to consistent profits, setting a solid foundation for its next phase of growth.

Beyond India, Kalyan is eyeing international markets, particularly the Middle East, as a growth driver. It aims to increase revenue contributions from non-southern regions to 25%, with a strong focus on the Gulf Cooperation Council (GCC) countries.

This aggressive expansion highlights Kalyan Jewellers' determination to secure a larger market share. The company is also investing in product innovation and enhancing customer experiences to stay ahead in a competitive landscape and cater to evolving shopper preferences.

Looking ahead, Kalyan's growth trajectory appears robust for FY25. It plans to open 80 new stores across India, up from 57 in FY24.

Profitability is set to get a boost as well, driven by a revised franchise agreement, which is expected to enhance margins without additional capital expenditure, and the repayment of Rs 3.5-4 billion in debt.

On the retail front, Kalyan is steadily improving margins by increasing sales of studded jewellery, both in southern markets and beyond.

The company has also demonstrated consistent performance, with same-store sales growing 12% in the first quarter-13% in the South and 11% in other regions.

To know more about the company, check out its financial factsheet and latest quarterly results.

#5 Godrej Properties

Last on our list we have Godrej Properties.

Godrej Properties is a leading real estate developer with a strong presence across major Indian cities.

Known for its innovative designs, sustainable practices, and premium housing projects, the company has carved a niche in the highly competitive real estate market.

The potential reduction in interest rates by the Reserve Bank of India (RBI) could be a game changer for the company, given the direct link between lower rates and increased demand for housing.

If the RBI cuts interest rates, housing loans will become more affordable, which is likely to boost demand for residential real estate.

As one of the largest players in the sector, Godrej Properties is well-positioned to benefit from this tailwind.

Lower EMIs can attract first-time homebuyers and investors, driving sales volume in the company's premium and affordable housing segments.

Additionally, reduced borrowing costs can help the company fund its ambitious expansion plans more economically.

Godrej Properties Financial Snapshot (2020-24)

	2019-2020	2020-2021	2021-2022	2022-2023	2023-2024
Revenue Growth (%)	-9.54%	-54.26%	93.96%	17.53%	42.62%
Operating Profit Margin (%)	33.53%	30.70%	48.99%	45.93%	38.51%
Net Profit Margin (%)	11.22%	-24.75%	19.21%	27.55%	24.61%
Return on Capital Employed(%)	9.83%	0.93%	5.14%	6.59%	6.38%
Return on Equity (%)	7.54%	-2.89%	4.13%	6.92%	7.77%

Source: Equitymaster

The business has grown at a robust pace. Between 2021-2024, the sales have grown at a CAGR of 6.1%, the net profit has more than doubled. The 5-year average RoE and RoCE stands at 5.7% and 4.9%, respectively.

Godrej Properties continues to invest heavily in land acquisition and project development, with an emphasis on Tier 1 cities.

The company has launched 15 new projects in FY24, focusing on both luxury and affordable segments. It has built a robust project pipeline, targeting over 30 million square feet of developable area by 2026.

Additionally, it has strengthened its financial position, reduced debt while maintaining high liquidity.

For FY25, the real estate giant is on track to exceed its bookings target of Rs 270 billion (bn), driven by a robust launch pipeline, resilient demand, and a focus on record deliveries and collections.

In the first half of the financial year, the company achieved an impressive 89% annual growth in sales bookings, surpassing Rs 138 bn.

To know more about the company, check out its factsheet and latest quarterly results.

Conclusion

The anticipated rate cuts by the RBI and global monetary easing could significantly boost economic activity, creating opportunities across various sectors. Lower borrowing costs are likely to enhance affordability, stimulate demand, and drive growth across sectors.

However, investors must keep a close eye on their operational performance, ability to scale, and strategic execution in this evolving landscape.

Investors should also consider corporate governance as one of the criteria for due diligence before considering an investment.

By staying informed and proactive, investors can seize the potential upsides while managing the risks tied to this industry shift.

By the way, you can also check out the video version of this editorial on Equitymaster's YouTube channel.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...