Most experts believe that a rate cut by the US Federal Reserve is a positive signal for the Indian markets. (AI image)
The US Federal Reserve cut the benchmark rate by 25 basis points in the latest monetary policy review. A split US Federal Reserve announced its third successive interest rate cut of the year, whilst indicating a potential pause in future cuts. The rate cut, reducing the range to between 3.50 percent and 3.75 percent, brings it to the lowest level in approximately three years – matched market predictions.A rate cut by the central bank of the world’s largest economy has implications for markets globally and India is no different. Indian equity benchmarks, Sensex and Nifty, are already down 2.05% and 2.16% from their lifetime highs hit a few days ago. The markets have been bleeding despite a repo rate cut by the Reserve Bank of India (RBI). Continuous outflow of foreign capital, rupee depreciation, and lack of clarity on the India-US trade deal are acting as negative triggers for the stock market. What does the US Fed’s rate cut mean for the Indian stock markets? We take a look:
US Federal Reserve’s rate cut decision:
US Federal Reserve Chairman Jerome Powell indicated that the central bank finds itself “well positioned to wait and see how the economy evolves from here.” The Federal Reserve reintroduced specific phrasing from late 2024 in its policy statement, suggesting a temporary halt to rate cuts.Powell emphasised that the committee remains suitably placed to assess the “extent and timing of additional adjustments based on the incoming data, the evolving outlook and the balance of risks.”The Federal Reserve projected one rate cut for the upcoming year, whilst highlighting increased employment-related concerns in its latest policy announcement.
What it means for Indian stock markets
Most experts believe that a rate cut by the US Federal Reserve is a positive signal for the Indian markets. Vijay Singh Gour, Research Analyst at Mirae Asset Sharekhan explains that the Fed’s monetary policy influences India’s financial markets, mainly by driving capital flows. The market had anticipated a 25 basis point rate cut, which would ease global liquidity. Such a cut is generally positive for Indian equities because lower US Treasury yields make dollar-denominated assets less appealing, encouraging Foreign Institutional Investors (FIIs) to increase allocations to emerging markets like India, thus boosting inflows and strengthening the Rupee, Vijay Singh Gour told TOI. “The 25 bps rate cut from the Federal Reserve is likely to provide some relief to the Indian currency and the FII sell off. This shall ease some pressure on Indian markets which are expecting some positive triggers,” says Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Group. “Also the Fed rate cut further opens up the space for RBI for a rate cut in the current low inflation environment to support growth,” he tells TOI.Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited cautions that the rate cut bodes well for the Indian markets, but the net impact may be muted. “The Fed’s decision to cut rates by 25 bps was on expected lines. The noteworthy part of the decision is the 9-3 vote, which signals a tough road ahead for further rate cuts. The FOMC’s dot plot indicates two more rate cuts – one in 2026 and another in 2027. However, this might change since the Fed chair has clearly indicated that “ we are well positioned to wait and see how the economy evolves,” he tells TOI. The Fed decision, though favourable from the market perspective, is unlikely to have a significant impact on the Indian market, which is being weighed down by the sustained selling by FIIs, the huge supply of paper from IPOs and the poor earnings growth of the last six quarters, he feels. “Of these, earnings growth is the most significant, and this is going to change for the better in the coming quarters. A slowdown in IPOs is likely in 2026, and along with this when earnings growth picks up, the market will respond positively. Weakness in the market now presents buying opportunities in high quality stocks, particularly in largecaps and selectively in midcaps,” VK Vijayakumar adds.
