Gift Nifty tumbles over 340 points as Fed turns cautious on rate cuts; Nifty, Sensex set to extend 3-day fall?

The US Federal Reserve did deliver a 25 basis point rate cut, a move that was already factored in by the markets.

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Indian equity benchmark indices Nifty and Sensex are poised to extend their three-day losing streak as indicated by a sharp drop in the Gift Nifty, after the US Federal Reserve turned cautious on future rate cut outlook. On Thursday morning, the Gift Nifty futures on IFSC was trading down 340 points or 1.4 percent from yesterday’s close.

This followed the overnight carnage in the US equity markets, where Dow Jones, S&P 500 and Nasdaq fell up to 3.3 percent after Fed Chairman Jerome Powell’s press conference, which alluded to the upside risks for inflation.

US Fed’s cautious stance weighs on global markets

The US Federal Reserve announced a widely expected quarter-point rate cut last night, bringing the target range to 4.25-4.5 percent. However, the Fed adopted a cautious stance on rate cuts in 2025, forecasting just two reductions instead of the four projected in September. Fed Chair Jerome Powell reiterated the central bank’s focus on inflation and the need for progress before committing to more aggressive easing.

Also read | Key takeaways from Fed's final policy meeting of 2024

This cautious tone triggered a sharp selloff in US markets. The Dow Jones Industrial Average plunged nearly 1,100 points, or 2.5 percent, marking its 10th straight day of losses, the longest streak since 1974. The S&P 500 and Nasdaq Composite dropped 3 percent and 3.3 percent, respectively.

Bond yields surged, with the policy-sensitive two-year US Treasury yield rising 10 basis points to 4.35 percent, and the 10-year yield climbing to levels last seen in May. Meanwhile, the US dollar strengthened, with Bloomberg’s dollar index hitting its highest since November 2022.

Nifty outlook post Fed rate decision, and technical levels to watch

While a 25 bps Fed rate cut was widely expected and largely priced in, experts warned that the cautious tone on future rate cuts and focus on inflation risks could trigger a knee-jerk reaction in markets. Persistent inflationary risks, coupled with the Fed’s reduced forecast for rate cuts, signal a warning for risk assets, supporting the Dollar and US yields in the near term, said Nirav Karkera, Head of Research at Fisdom.

Also read | Why Nifty lost 600 points in 3 days ahead of US Fed decision, and how markets may move till next RBI MPC meet

On the domestic front, challenges such as stretched valuations, a weakening rupee, and uncertainties around the timing of RBI's rate reversal decisions add to the pressure. However, Karkera said that a quicker recovery appears plausible, supported by domestic interest, a favourable growth outlook, and upcoming events like the RBI monetary policy meeting and the Union Budget.

On the technical side, if the Nifty 50 decisively breaks below 24,050, the November low of 23,873 becomes the key level to watch, according to experts. Vidnyan Sawant, Head of Research at GEPL Capital, said a shift from a sideways trend to a negative trend could occur if the index breaches the 23,800 level, with the next support at 23,250. On the upside, the key resistance is positioned at 24,500.

Indian markets under pressure

The Gift Nifty’s sharp fall signals continued pressure on Indian equities, which have already lost nearly 600 points in the previous three sessions amid profit booking and cautious sentiment ahead of the Fed’s decision. A further decline in Nifty and Sensex could weigh on market sentiment as global headwinds and technical indicators align for a challenging trading session.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.