Discount Rate

The Discount Rate is the interest rate used to determine the present value of future cash flows in discounted cash flow (DCF) analysis. A higher discount rate reduces the present value of future earnings, leading to a lower valuation, while a lower discount rate increases present value. In India, the RBI's repo rate indirectly influences discount rates across the economy. For equity analysts, the discount rate typically incorporates the risk-free rate (government bond yield) plus an equity risk premium, making it a cornerstone of stock valuation models.