A change in interest rates changes the value investors put on future company earnings, and this link came back into focus after the RBI raised the repo rate to 5.50% from 5.25% on 7 October 2026. The The NSE's main stock index, which tracks 50 large, actively traded companies and weights each by the market value of its publicly tradable shares. Read the full meaning of Nifty 50 closed at 22,603.05 on the day of the hike, down 173.05 points or 0.76%.
It was the first hike in the repo rate since February 2023 and the RBI has switched to a calibrated tightening stance. All six members of the monetary policy committee agreed on the rate decision, but the shift in stance was decided by 4-2, with two members preferring to stay neutral.
Many families and investors had become used to falling rates. In 2025, the RBI had reduced the repo rate by a total of 1.25 percentage points, and the last cut came in December 2025. After that, the rate was held for around ten months and the hike has come at the end of this period.
Bond market has also been shifting. The 10‑year government bond yield ended at 7.198% on 6 October, a day before the rate hike, and by 30 October it had risen to 7.412%. Investors who follow both bonds and shares are now watching this yield together with Nifty.
Why higher yields pull valuations down
The price of a share is basically a reflection of the earnings a company is expected to make in the years ahead, and those earnings are discounted at a certain rate to figure out their value today. When the return on government bonds goes up, the discount rate that investors use also rises which means the same future earnings are worth less in today’s terms.
An investor who can earn a higher return from a government bond will expect a higher return from shares as well, and this can lead to lower price to earnings multiples.
The yield had been rising well before the hike, it stood at around 6.60% at the start of 2026, and it was about 7.18% in late September. The yield rose for 11 straight weeks and touched 7.498% on 27 October, then eased in the week to 30 October.
Outlook Money had flagged realty, auto, consumer durables and financials as the sectors facing higher borrowing costs. Investors holding shares of these companies are now following the bond yield as closely as they follow the quarterly results.
Global conditions are adding to the pressure. The US 10-year Treasury yield was reported above 5%, which narrows the yield premium on Indian debt and weighs on equity valuations in many markets, including India.
What the market is expecting next
The swaps market is pricing in hikes of around 125 basis points (bps) over the next 12 months, and some investors see this as excessive. Alongside this, bets had built on a hike of 50 bps in December, with high oil prices the main driver, but these eased to about 25 bps on 2 November as oil fell.
Inflation figures enter this line of thought too. With a yearly inflation estimate of 5.2%, the actual real repo rate sits just around 0.3 percentage points, so some market players think that further tightening could still be on the cards. The RBI projects inflation to average about 6.0% in October to December 2026, which touches the upper end of its tolerance band, and about 5.8% for the period from October 2026 to June 2027.
The rise that has already happened is a known fact. The amount of future hikes is still being decided every day by the bond market, by the way yields move.
On 20 September 2013, the RBI surprised the market by raising rates by 25 bps to 7.50%. The 10‑year yield moved up 18 bps to 8.36%, while the Sensex tumbled about 2.5% during the day.
A possible 50 bps move in December, tied to oil prices, is the next marker for investors tracking the yield.
