4 India ETFs Under the Spotlight as RBI Cuts Interest Rate

In a decisive move, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) unanimously cut the key repo rate by 25 basis points to 5.25% today. The announcement triggered an immediate rally in India’s equity markets, with the Sensex gaining around 300 points and the Nifty rising 100 points in the early hours of trading (as reported by CNBC TV 18). This marks the fourth rate cut in 2025, bringing the cumulative reduction for the year to 125 basis points.

The most pronounced gains were observed in rate-sensitive sectors—precisely those industries with heavy capital requirements that benefit directly from lower borrowing costs. The Nifty Realty index jumped 1.5%, while Nifty Bank and Nifty Auto gained 0.65% and 0.4%, respectively (within an hour of the market’s opening, as reported by Mint). 

Market experts immediately identified this as a watershed moment for equity investors. Sonam Srivastava of Wright Research PMS noted that "rate sensitives like banks, autos, and real estate can see near term strength," while Ravi Singh of Master Capital Services called the policy "constructive" for these sectors. 

This broad-based positive reaction sets the stage for a potentially sustainable boost to India's equity market, with Exchange-Traded Funds (ETFs) offering diversified exposure to capture the momentum.

Factors Driving the Rate Cut

The RBI’s decision to cut rates was driven by a rare confluence of exceptionally low inflation and sustained strong economic growth, a scenario that RBI Governor Sanjay Malhotra described as a "Goldilocks" phase for India’s economy.

Despite India's resilient economic growth, with the FY26 GDP forecast revised upward to 7.3% from 6.8%, the MPC noted a benign inflation outlook. The consumer price index (CPI) headline retail inflation recently slumped to a multi-decade low of roughly 0.25% in October, which, combined with easing core inflation, created the necessary policy move.

The rate cut, which was mainly in line with consensus expectations from economists and some renowned brokerages like Goldman Sachs surveyed before the policy announcement, is designed to bolster the growth momentum by encouraging greater consumption and investment.

How the Rate Cut Fuels the Stock Market?

A lower policy rate acts as a powerful stimulant for the equity market through several interconnected channels:

Reduced Cost of Capital: Lowering of the repo rate decreases borrowing costs for businesses and consumers alike. This boosts corporate profitability (as financing expenses fall) and fuels demand for big-ticket items like homes and vehicles. Sectors like banking, real estate, and automobiles are direct, immediate beneficiaries of this dynamic.

Improved Corporate Valuations: In financial valuation models, future corporate earnings are discounted back to their present value using interest rates. Lower rates reduce this discount factor, thereby increasing the present value of future earnings and justifying higher equity valuations across the board.

The Search for Yield: As deposit and fixed-income returns decline following a rate cut, savings and institutional capital are incentivized to shift toward higher-yielding assets like equities to meet return targets. This rotation of funds can provide substantial inflows into India’s stock market.

Why the Spotlight is on ETFs

For investors looking to capitalize on the growth opportunities that the stock market can offer in the current scenario, ETFs offer immediate, broad-based exposure to high-growth sectors or the entire market, whereas individual stocks come with company-specific risks.

Moreover, ETFs typically have lower expense ratios than actively managed funds and offer the liquidity and transparency of trading on an exchange. This makes them an efficient tool for both tactical positioning and long-term strategic allocation in a changing rate environment.

India ETFs in Focus

In light of the above discussion, investors may keep the following ETFs in their watchlist and even invest to gain exposure to India’s evolving growth story:

iShares MSCI India ETF INDA

This fund, with net assets worth $9.51 billion, offers exposure to 164 large and mid-cap Indian companies. Its top three holdings are HDFC Bank (8.15%), Reliance Industries (6.72%) and ICICI Bank (5.27%). 

INDA has gained 2.1% year to date. The fund charges 62 basis points (bps) as fees. 

WisdomTree India Earnings Fund EPI 

This fund, with total assets worth $2.79 million, provides exposure to 544 profitable companies in India’s equity market. Its top three holdings are Reliance Industries (7.72%), HDFC Bank (6.22%) and ICICI Bank (5.30%). 

EPI has risen 0.9% year to date. The fund charges 84 bps as fees. 

iShares India 50 ETF INDY

This fund, with total assets worth $685.6 million, provides exposure to 50 of the largest Indian stocks. Its top three holdings are HDFC Bank (12.84%), Reliance Industries (8.76%) and ICICI Bank (8.35%). 

INDY has soared 4.1% year to date. The fund charges 65 bps as fees. 

Franklin FTSE India ETF FLIN

This fund, with total assets worth $2.64 billion, provides exposure to 273 large and mid-cap companies in India. Its top three holdings are HDFC Bank (7.13%), Reliance Industries (6.60%) and ICICI Bank (4.62%). 

FLIN has risen 1.8% year to date. The fund charges 19 bps as fees.

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