RBI likely to hold rates steady in April amid global uncertainty, says ALF Accurate's Kothari

The Reserve Bank of India is expected to leave interest rates where they are when the monetary policy committee meets in April, according to Rajesh Kothari, founder and managing director of ALF Accurate Advisors. The decision will reflect a careful balancing act: domestic economic conditions remain solid, with inflation stable and growth steady, but global risks—particularly volatile crude oil prices and Middle East tensions—are pushing the central bank toward caution rather than the rate cuts some investors might otherwise expect.

Kothari frames the RBI's likely posture as "pause with readiness to act." This means the bank will hold its ground on rates while staying alert to changing conditions, prepared to move if circumstances shift. The reasoning is straightforward: financial stability and inflation control take priority when the external environment is this uncertain. Crude oil prices hovering above $100 a barrel create a particular headache. If they stay elevated, India faces higher subsidy costs for essentials like LPG and kerosene, less room to adjust excise taxes, and potential strain on the current account—all of which ripple through the government's fiscal calculations.

Yet India enters this period in stronger shape than it faced previous commodity shocks. Tax revenues are more robust, subsidy frameworks are tighter, and fiscal discipline has improved. The government has some cushion. Still, if crude prices remain high for an extended stretch, the fiscal deficit could slip moderately from target. The impact is manageable for now, but prolonged elevation would test that resilience.

On valuations, the market has already absorbed much of the bad news from Middle East tensions. The Nifty is trading around 18.5 times forward earnings for fiscal 2027—below the ten-year average—suggesting downside risk is limited, particularly for investors with a longer time horizon. India's macroeconomic fundamentals today are materially stronger than they were during the Russia-Ukraine conflict: growth visibility is clearer, corporate balance sheets are healthier, and domestic investment flows remain steady. The risk-reward calculation has shifted in investors' favor, even if prices are not outright cheap.

Earnings expectations for fiscal 2027 assume roughly 15 percent growth, built on a modest 9 percent gain in fiscal 2026. That trajectory is achievable, though crude oil remains the key variable to watch. Sustained high prices could compress margins in consumption-focused sectors and force analysts to trim forecasts. But India's broader economic backdrop—improving balance sheets, solid credit growth, and continued capital spending—should absorb some of that pressure.

In banking and financial stocks, Kothari takes a selective view. The sector is structurally sound, with credit growth improving and asset quality strengthening, but not every institution offers equal opportunity. He favors banks with strong deposit franchises, consistent asset quality, and clear growth visibility, particularly those navigating post-merger integration. The recent market decline has opened doors for disciplined stock-picking, though it is not a blanket buying signal.

Digital platforms, defense, and pharmaceuticals remain structurally attractive, but again with discipline. Digital platforms must show clear paths to profitability, not just growth stories. Defense benefits from government support and domestic manufacturing push, though valuations in parts of the sector have become demanding. Pharma offers defensive qualities and export upside in a volatile world. Across all these areas, the message is consistent: opportunity exists, but it requires careful selection rather than broad-based conviction.