US Fed Rate Cut​ of 25 bps: Impact on Indian Stock Market

The Federal Reserve announced the US Fed rate cut of 25 basis points and the benchmark interest rate was reduced to a range of 4.50% – 4.75% on November 7, 2024. In September 2024, the Federal Reserve previously announced a US Fed interest rate cut of 50 basis points bringing the benchmark interest rate to 4.75% – 5%. This was done after the softening of inflation in the view to push up the US job market.

US Fed Interest Rate Cut: Key Highlights

• The Committee decided to lower the target range for the federal funds rate by 25 bps from 4.50% to 4.75% on November 8, 2024.
• In considering additional adjustments to the US fed rate cut​ rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
• The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.
• The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance with the latest US fed rate cut.
• The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
• The Committee is strongly committed to supporting maximum employment and returning inflation to its 2% objective.

US Fed Rate Cut Impact on Indian Stock Market​

On November 8, 2024, a day after the US Fed interest rate cut the Indian stock market opened at flat. The Nifty 50 opened with a rise of just 0.03% at 24,207.70 points while Sensex gained only 0.09% and opened at 79,611.90.

With the US fed rate cut, the difference between the US and other emerging markets like India’s interest rate could widen. There will be more arbitrage opportunities in India for currency carry trade till the time India also follows the rate cut path. The US fed rate cut can also supercharge the growth in the US market which might have a positive impact on other countries especially India which is heavily exporting to the US.

Conclusion

The US fed rate cut can lead to increased foreign investments in equities, and a stronger rupee supporting the import-related sectors in India. Also, it can boost the banking, financial, infrastructure, and real estate sectors along with controlled inflation. All in all, the US Fed rate cut impact on Indian stock market​ might seem like short-term volatility and investors can think of moving their investment portfolios to FMCG and pharmaceuticals. In the long run, the Indian stock market will react to the US fed rate cut according to the overall global outlook and the RBI stance.

References

https://economictimes.indiatimes.com/markets/stocks/news/us-fed-cuts-key-rate-by-a-quarter-point/articleshow/115067601.cms

Author: All Content is verified by SMC Global Securities.