Fed Rate Cut Impact on Indian Market: What to Expect
The US Federal Reserve has cut interest rates by 25 basis points, lowering the target range to 3.75-4%. This marks the second time the Fed has cut rates this year, having already issued a 25 bps cut in September.
More than the rate cut, what stood out was US Fed Chair Jerome Powell’s statement on how a December rate is not a foregone conclusion, which may have serious implications for the Indian stock market.
Impact on Global Markets
Wall Street certainly did not approve of the comment from Powell, with the Nasdaq falling almost 1% immediately after the announcement. Dow Jones also had a 0.75% negative reaction to the announcement and ended the day in red.
US Fed’s move to cut rates by 25 bps comes on the back of elevated inflation and the US government shutdown, resulting in a lack of economic data for Fed to deduce.
Indian Market Reaction
Market participants will be closely watching the spillover effect of the US Fed rate cut on emerging economies, with the Indian stock market being a key focus area, especially at a time when benchmarks are recovering after a long period of consolidation.
An early indicator is the GIFT Nifty, which is trading with gains of one-fifth of a percent. Asian markets, on the other hand, are trading mixed.
While KOSPI and Shanghai have reacted positively, both Nikkei and Hang Seng were trading in the red early on.
Short-Term Impetus for Indian Markets
A rate cut in the US usually translates to cheaper global liquidity, a weaker dollar and foreign investors scouring for yield. This could mean short-term impetus for the Indian markets.
This is evident in the way GIFT Nifty is trading with gains of 0.2, which indicates a relatively strong open for benchmarks.
RBI’s Next Move
Analysts reacting to the rate cut had suggested that the RBI could take cues from US Fed to issue further rate cuts, which in turn, could aid sentiment.
‘This is a clear green lighting for RBI to cut repo rate in its next meeting in early December. Its last policy was defined as a dovish pause and that’s exactly what it did to markets by reigning in further widening of long end government yields,’ said Vishal Goenka, Co-Founder of IndiaBonds.com.
What to Expect from the Indian Market
As the Indian stock market reacts to the Fed rate cut, investors should keep a close eye on the movement of the Nifty and Sensex.
A strong open for benchmarks could lead to a positive day for the Indian markets, while a weak open could lead to a decline.
Investors should also keep an eye on the movement of the rupee, as a weaker dollar could lead to a stronger rupee, which could have a positive impact on the Indian economy.
Conclusion
In conclusion, the Fed rate cut has sparked interest among Indian investors, and the Indian market is likely to react positively in the short term.
However, investors should keep a close eye on the movement of the Nifty and Sensex, as well as the rupee, to make informed investment decisions.
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