The US Federal Reserve on Wednesday cut the benchmark interest rate by 25 bps to the range of 3.75% – 4.00% as was widely expected by the market. This was the second straight interest rate cut by the US Fed this year. The central bank said it will now be focusing on the balance of risk in the US economy, along with the evolving outlook and the incoming data, to further decide on the future route of the key interest rates.
However, downplayed the possibility of an interest-rate cut in the next monetary policy as he said that the market’s prediction about a potential rate cut in December 2025 is not a ‘foregone conclusion’ and highlighted that the reality is “far from it.”
The market odds of the Fed delivering another quarter-point cut in December have eased to around 68%.
The ended mixed on Wednesday after the Fed policy, with the Dow Jones and S&P 500 ending lower, while gains in tech stock lifted the Nasdaq index. Asian markets also traded mostly lower on Thursday.
Impact on Indian Stock Market
The US Federal Reserve policy outcome is also expected to impact the Indian stock market today. The recent run up in the domestic equities show that a 25 bps US Fed rate cut was largely discounted by the market participants. However, analysts believe easing monetary policy in the US may lead to increased foreign fund inflows into emerging markets, including India.
“The US Fed rate cut will be net positive in the longer term even as it was already discounted. However lower US yields will reduce the relative appeal of American bonds and some FII money will come to emerging markets like India,” said market expert Avinash Gorakshakar.
However, Gorakshakar does not expect a runaway rally in the Indian stock market purely due to this factor as a 25 bps rate cut seems to be largely priced in.
Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities also noted that if the US Treasury yields tend to fall, borrowing costs eases for global investors, which tends to encourage “risk‐on” flows into emerging markets like India.
According to Mohit Gulati, CIO, ITI Growth Opportunities Fund the US Fed rate cut marks the formal pivot in global monetary policy which markets have been pricing in for months.
“For India, this could translate into renewed FPI flows and stronger liquidity support, particularly for financials and consumption plays. However, investors should temper the euphoria — rate cuts don’t magically fix growth or earnings. This is a liquidity tailwind, not a fundamentals reset. India remains one of the cleanest macros in the emerging world, but selectivity will matter more than ever,” said Gulati.
He noted that liquidity was certainly back on the table, but not everyone gets to eat. “The era of free money is over — now it’s about smart, selective capital chasing real performance,” he said.
Meanwhile, the US stocks and bond prices fell, and yields pushed higher after the cut a more cautious tone than expected in his press conference, stating that there were strongly differing views and that a December rate cut was far from a foregone conclusion.
“Whilst the Fed is easing, it is doing so with caution, which could cause increased volatility in equities during the uncertainty and bond yields could push higher if the market reduces expectations of deeper cuts. Markets should read this as supportive but not aggressive which is helpful for growth assets, but unlikely to spark a “risk on” rally unless labour-market and inflation data show clear improvement,” said Ross Maxwell, Global Strategy Lead at VT Markets.
Technical View
Nifty 50 index formed a small-bodied candle with a minor upper shadow on the daily chart, a sign of mild selling pressure emerging around this crucial resistance zone. The index is comfortably trading above its key moving averages.
“On the indicator front, the RSI has gradually risen from 67.92 to 72.43 over the last three sessions, suggesting that buying strength is still present. Meanwhile, the ADX continues to rise, indicating that the broader trend is strong, which supports the case for further upside if manages to break above immediate resistance levels,” said Sudeep Shah, Head – Technical Research and Derivatives at SBI Securities.
According to him, the zone of 26,100 – 26,150 will act as an immediate resistance for Nifty 50, and if the index manages to give a follow through move above the level of 26,150, then the rally can continue further till 26,350 level.
While, on the downside, the zone of 25,850 – 25,800 will act as a crucial support for the Nifty 50 index, he added.
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