Indian equity markets are poised to respond positively to the recent statements from the US Federal Reserve regarding interest rate cuts. On Wednesday, the Fed maintained its key interest rate at a 23-year high of 5.25-5.50 percent while acknowledging progress towards its two percent inflation target and possible rate cuts in the next meeting.
Fed chair Jerome Powell hinted at potential rate cuts as early as September if economic data continues to align with the Fed's objectives of managing inflation and employment.
Powell's dovish remarks fueled a rally in US stocks, marking the best Federal Reserve day in two years. Wall Street, initially buoyed by tech and semiconductor giants like Nvidia, Meta, and Apple, celebrated the prospect of lower rates.
Indian markets are expected to mirror this sentiment, potentially seeing significant gains on August 1. US 10-year bond yields which are inversely correlated to bond prices slipped sharply lower and are on the verge of falling below the 4 percent mark.
"This is a big positive for the markets as the cost of capital for corporates and consumers is falling. Riskier assets like emerging markets and metals are likely to do well. Precious metals like gold and silver too should benefit from rate cuts," said Apurva Sheth, Head of Market Perspectives and Research , SAMCO Securities.
Also Read | US Federal Reserve keeps key lending rate unchanged
What Fed meeting outcome means for India
Analysts at Kotak Institutional Equities suggest that a September rate cut could channel more investments into emerging markets (EMs), with India standing to benefit substantially.
Despite concerns about valuations, India’s robust economic position could attract increased investor interest. Powell’s hints at lowering rates could drive investments into EMs, particularly in India.
Kotak analysts highlight that while US markets have outperformed and China has lagged, a US rate cut could revitalize interest in EMs. India, with its strong economic fundamentals, is well-positioned to capitalize on this shift.
Amit Goel, co-founder and chief global strategist at Pace 360, believes the Fed's signals of a potential rate cut in September should positively impact the Indian market, especially the Nifty, which has been hovering near the 25,000 mark.
"We see a high probability of Nifty opening with a gap-up post-Fed and continuing its march beyond 25,000 levels," he said.
Market reactions to the Fed’s decision will be evident in early trades. Ajit Mishra, SVP of Research at Religare Broking Ltd, notes that the current market tone is likely to persist.
"With key sectors, except banking, driving momentum, traders should focus on quality stocks and utilize market dips for accumulation," he advised.
Also Read | US Fed Meet Highlights: Federal Reserve leaves interest rate unchanged
A fall in US interest rates is expected to boost US growth, positively impacting India's IT sector and other exports. Additionally, a cheaper US dollar could strengthen the Indian rupee, encouraging capital inflows into the country.
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