Interest Rate Cuts Could Be a Catalyst for these 5 Growth Stocks

When central banks like the Reserve Bank of India (RBI) reduce interest rates, borrowing becomes cheaper. This means companies can access loans at lower costs, making it easier for them to invest in new projects, expand their operations, or fund innovation.

Lower interest rates also increase consumer spending, as people pay less on their loans and have more money to buy goods and services.

Currently, the RBI has held the repo rate steady at 6.5%?, but with inflation pressures easing, rate cuts could be on the horizon.

Growth stocks, which are typically companies with strong expansion potential, stand to benefit the most from this. Lower borrowing costs can help these companies scale faster.

Top Growth stocks usually make large investments right now for the chance of earning higher profits in the years ahead. And they rely a lot on debt.

With a potential shift in monetary policy by RBI in the coming months, let's look at the top growth stocks in India and how they are positioned for 2025.

These stocks are filtered using Equitymaster's Powerful Stock Screener.

#1 Swiggy Ltd.

Swiggy Ltd, founded in 2014, is a leading online food delivery and hyperlocal commerce platform in India. Through its unified app, Swiggy offers services like food delivery, quick commerce, and supply chain solutions, positioning itself as a consumer-first company with a diversified business model.

Currently, Swiggy is expanding its quick commerce segment, Instamart, which delivers groceries through a growing network of dark stores. The company plans to double its dark store area by 2025, aiming to meet rising demand. Swiggy also introduced "Swiggy Bolt," a rapid last-mile delivery service, and is exploring new partnerships and advertising streams for profitability.

In terms of performance, Swiggy reported a gross order value (GOV) of Rs 113 billion (bn) in the second quarter of FY25, with food delivery growing by 5.6% quarter-on-quarter. Although Swiggy remains a loss-making entity, the company reduced its consolidated adjusted EBITDA loss by 30%, signaling improving margins.

With interest rates potentially being cut by the RBI, Swiggy could benefit from lower borrowing costs to fund its expansion projects and improve profitability.

As consumer spending rises in an easing monetary environment, Swiggy's diversified services and strong market presence could position it for substantial growth, making it a relevant player in India's tech-driven growth stocks.

Currently, Swiggy and Zomato are the two dominant players operating in the food delivery industry and they both could piggyback on the trend as interest rates come down.

Both have strong expansion plans, but investors should not forget the rising competition in the quick commerce space, (Amazon being the latest entrant in India's quick commerce market).

For more information, check out Swiggy's and Zomato's financial factsheet.

#2 Bajaj Housing Finance Ltd. (BHFL)

Bajaj Housing Finance Ltd. (BHFL), a part of Bajaj Finance Ltd., is one of India's leading housing finance companies, offering loans for home purchases, property renovations, and developer financing.

It serves both individuals and businesses, focusing on low-risk lending and maintaining strong asset quality. With an extensive network of branches across the country, BHFL continues to expand its reach and product offerings.

The company is focused on growing its home loan segment and developing new products like insurance, aiming to diversify its portfolio. In the future, BHFL plans to increase its presence in affordable housing and further grow its AUM.

The key differentiator for the company is the use of technology for identifying and understanding the needs of the potential home loan customers.

Bajaj Housing Finance can access the customer quicker, to be able to complete the loan process faster than competitors.

The recently concluded IPO by the Bajaj group company has also provided it with additional capital to expand operations.

BHFL's performance has been impressive, with a 26% growth in assets under management (AUM) and strong profitability. The company has maintained low non-performing assets (NPA) and has shown consistent improvement in its operational efficiency.

The recent reduction in interest rates provides a favorable environment for BHFL as it lowers borrowing costs, making loans more affordable for customers and driving up demand.

Bajaj Housing Finance had an average loan-to-value ratio of 69%, one of the highest in the sector. The average loan ticket size of Rs 4.6 million as of June 2024, is also higher than that of most peers.

For more information, check out Bajaj Housing's financial factsheet.

#3 Dixon Technologies (India) Ltd

Dixon Technologies (India) Ltd, founded in 1993, is a leading Electronics Manufacturing Services (EMS) company specializing in consumer electronics, home appliances, lighting, mobile phones, and security systems.

The company operates in both the Original Equipment Manufacturer (OEM) and Original Design Manufacturer (ODM) models, providing a broad product range from mobile phones to lighting products and home appliances.

Currently, Dixon is focusing on expanding its manufacturing footprint, particularly in mobile phones and home appliances. Recent achievements include the commencement of Google Pixel smartphone production through its unit, Padget Electronics, and the launch of a refrigerator manufacturing facility.

Dixon's future goals include increasing its mobile production capacity and establishing partnerships for new product categories like wearables and IT hardware.

The company's financial performance has been impressive, with a 133% year-on-year increase in revenue and a 265% rise in profit after tax in the most recent September 2024 quarter. The mobile phone segment, which contributes significantly to its revenue, saw a 235% growth in revenues.

Despite some challenges in the LED TV segment, Dixon is poised for continued growth with a healthy order book.

Interest rate cuts would benefit Dixon by reducing borrowing costs, which is important as the company plans for significant capital expenditure and debt repayments over the next few years. With lower interest rates, Dixon can potentially accelerate its investments in expanding production capacities and entering new markets.

Dixon is also exploring the EV sector, focusing on electronic modules and PCB assembly, and entering open-cell manufacturing.

For more, check out Dixon's financial factsheet.

#4 Trent Ltd

Trent Ltd, part of the Tata Group, is a major player in the retail industry, with a diverse portfolio that spans fashion, food, and grocery sectors. It operates over 875 stores across India, offering a wide range of products from apparel to groceries through brands like Westside, Zudio, and Star Bazaar.

The company is expanding rapidly, particularly in its value fashion segment through Zudio, and has launched new initiatives like the lab-grown diamond brand, Pome.

Currently, Trent's future growth hinges on its expansion plans, with new stores being added in both fashion and grocery sectors. The company aims to enhance its sustainability efforts, focusing on resource efficiency and renewable energy, alongside continued development in its grocery vertical.

Trent's financial performance has been robust, with a 49% YoY increase in profit and a 39.4% rise in revenues for Q2FY25. The company's focus on scalability, particularly through Zudio's aggressive store rollout, is poised to continue driving growth.

In a changing macroeconomic landscape, interest rate cuts could provide a boost to consumer spending, benefiting retail businesses like Trent. Lower interest rates tend to increase disposable income and improve consumer sentiment, encouraging higher footfall in stores.

This, combined with Trent's expansion and brand strength, could further fuel its revenue growth.

For more, check out Trent's financial factsheet.

#5 Adani Green Energy (AGEL)

Adani Green Energy (AGEL) is a leading renewable energy company in India, primarily involved in solar and wind power generation.

As part of the Adani Group, it is India's largest renewable energy producer, with a total capacity of 10.9 GW and significant ongoing projects like the world's largest renewable energy plant in Khavda, Gujarat.

The company is actively expanding its renewable energy capacity, aiming for 50 GW by 2030, with a diversified mix of solar, wind, and hybrid power solutions. It also focuses on innovative projects like hydro pumped storage systems.

AGEL has a strong pipeline of projects, including 2.8 GW of renewable capacity added in FY24, and strategic moves to supply solar power to major corporate clients like Google.

AGEL's financial performance has been impressive, with revenue from power supply rising by 20% YoY, and a significant increase in energy sales. The company has successfully expanded its operational capacity by 2.8 GW, bringing its total to 11.2 GW.

Its future prospects remain strong, with an anticipated 6 GW of renewable capacity in FY25.

Interest rate cuts would benefit AGEL by reducing the cost of capital for its large-scale infrastructure projects. As renewable energy ventures are capital-intensive, cheaper borrowing would allow AGEL to accelerate its expansion, enhance project development, and potentially improve returns on investment.

Moreover, lower interest rates could enable AGEL to refinance its debt at favorable rates.

One must note that Adani Green has always heavily depended on debt to fund its capex. Hence it always had a high debt-to-equity ratio. However, since March 2022, the company has been repaying its debt which reduced the debt-to-equity ratio to 6.9x in March 2024 from 37.1x in March 2022.

The company is set to repay a debt of Rs 146.9 bn in the second half of financial year 2025 and refinance Rs 89 bn of its debt for capex requirements.

However, as you may know, the Adani Group does not have a good reputation as far as corporate governance is concerned. There are certain factors that must be upheld above everything else, and we have zero tolerance for poor corporate governance.

There's too much drama for retail investors in Adani stocks so tread with caution.

For more, check out Adani Green's financial factsheet.

Snapshot of Growth Stocks on Equitymaster Screener

Here's a table showing the above companies on various important parameters -

Conclusion

In conclusion, interest rate cuts by the Reserve Bank of India could open up new growth opportunities for various sectors in the country.

With borrowing costs going down, companies can invest in expansion, new technologies, and innovations, which will likely push stock prices higher.

Sectors like tech, housing, retail, and renewable energy stand to benefit the most, as they are highly sensitive to interest rate changes.

However, investors must keep a close eye on the operational performance of these growth stocks, their ability to scale, and strategic execution.

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.

Happy Investing.

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