Business News Desk – The United States Federal Reserve cut its policy rates by 50 basis points on September 18. This is the first rate cut in the last four years. While this aggressive rate cut may support the Indian equity market in the short term, market experts have expressed concern that the market may see this move as a sign of the Fed’s growing fears about a possible economic slowdown in the US. Reacting to the Fed’s decision, GIFT Nifty futures on NSEIX saw a gain of about 120 points. However, it later cooled off from the upper levels. Following this news, US-listed American Depository Receipts (ADRs) of Indian IT giants Infosys and Wipro also reacted similarly. They initially rose, but later slipped from the top. Yesterday these ADRs were seen trading down by up to 1.8 percent.
Will the Indian stock market go up or down after the Fed rate cut?
The question is whether the Indian stock market will go up or down after the Fed rate cut? We will have to wait to understand this. Still, it can be said that this rate cut has created strong expectations of a softening of the interest rate cycle. This will support the Indian equity market from select stocks ranging from banking and finance to IT and even defensive sectors like FMCG and pharma. Nilesh Shah, MD of Kotak Mahindra AMC, says that this rate cut will encourage foreign investment in emerging markets along with a weaker dollar and lower rates.
Before the Fed’s announcement yesterday, analysts had predicted a 25 basis point rate cut, but they also said a 50 basis point cut could see a strong market reaction. Kranti Bathini, director of equity strategy at Wealthmills Securities, had said a bigger rate cut would be a “booster” for emerging markets, especially in areas with banking system liquidity like India, it would have a very positive impact. “The market has already taken a 25 bps cut as certain. If a 50 bps cut happens, it could boost sentiment in emerging markets,” Bathini told Moneycontrol before the rate cut announcement. He said the market will closely monitor Jerome Powell’s comments for cues on future rate cuts.
Bathini believes that the Indian BFSI sector remains attractive. Any positive change in the US economy could be beneficial for Indian IT stocks. Bathini also expects that due to governance concerns in China, the focus of foreign investors globally may shift from China to India. He said that foreign institutional investors (FIIs) may show more interest in India. But they may look for opportunities only in select stocks as medium-term valuations are expensive.
Religare Broking’s Ajit Mishra reacted cautiously about the implications of aggressive rate cuts by the US Fed. Before the Fed’s announcement, he had said that a 50-bps rate cut could signal an economic slowdown in the US, which could lead to a negative market reaction. Mishra said that recently FIIs have shown interest in Indian banking and NBFC stocks. He also warned that foreign investors may be seen preferring other markets instead of India.
Sectoral Outlook: Jerome Powell’s rate cut will benefit the IT sector
Both analysts have talked about the use of stock-specific strategies in the current environment. They believe that after the rate cut, we should focus on sectors like IT, private banks, FMCG, pharma and realty. Ajit Mishra has warned against investing in PSU stocks citing expensive valuations despite the recent correction.
Bathini also shared similar views. He said that foreign investment is mainly coming in select sectors. He said that the IT sector can now boom. Any boost that US companies get from the rate cut will be in the interest of Indian IT companies. It is worth noting that the initial response to the interest rate cut was good for Indian equities. But the long-term scenario remains uncertain as market experts are keeping an eye on global economic data and further action by the Fed.
