Fed’s dovish pivot sparks early Santa Claus rally; Sensex, Nifty rule record highs

"Indian markets are also likely to celebrate this with a positive opening. Simply put it in a Memefied world, the market conditions are 'Just Looking Like a Wow' for the Bulls," said Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities.

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The US Fed is the world's most powerful central bank and its decision on federal funds rate have a significant impact on emerging markets like India. When Fed announces rate cuts, foreign investors are likely to increasingly raise their bet on EMs like India as lower rates influences dollar to be on a weaker trajectory, making riskier assets more attractive.

Global sentiments strengthen

Elsewhere, the US markets also ended on a record high note overnight following dovish Fed signals.

The S&P 500 topped 4,700, the Dow Jones Industrial Average hit a record and the Nasdaq 100 extended this year’s surge to over 50 percent.

The US Federal Reserve kept interest rates unchanged at 5.25-5.5 percent for the third consecutive time on December 13 and switched to a dovish outlook for 2024.

Chairman Jerome Powell sent clear indication that the US central bank would begin cutting interest rates in 2024, pointing to 75 basis points worth of cuts next year.

One basis point is one-hundredth of a percentage point.

The Fed dot plot showed that most officials expect rates would end next year at 4.5 percent to 4.75 percent and further fall would be seen in 2025 at 3.5-3.75 percent.

ALSO READ: Dow ends at record high as Fed signals lower borrowing costs in 2024

Rate cuts to infuse more FII flows into Indian equities

The Fed's path to easy monetary policy in 2024 will trigger more foreign inflows into India as an interest rate cut would mean easing dollar and bond yields.

"With 100 basis points fall in 10-year US treasury bond yields from a multi-year high of 5 percent in October, more FII flows are expected to enter India more aggressively," underlined VK Vijayakumar of Geojit Financial Services.

He further said that FIIs will be tracing back the stocks that they have been selling past few months, like banking names.

Overnight, the 10-year US treasury yields were below 4 percent mark, down from its multi-year high of 5 percent reached in October.

That apart, the US dollar index, which acts as a greenback against six other currencies, declined to 102.9 on December 13.

At a time when Fed lowers interest rates and switches to a more dovish outlook, it encourages borrowing across investors that ultimately weighs on the greenback.

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