Kolkata: Chairman Jerome Powell ended months of “will-he-won’t-he?” moments, trimming the US Fed policy rate by 25 basis points on September 17 and policymakers forecasting two more similar cuts this year. The moot question now: how will the cut impact the Indian equity market? Analysts are converging to the opinion that while much of the rate cut has been factored in by the Indian investors, the indication that there might be two more cuts this year can spark a degree of enthusiasm on D Street.
The position of market analysts can be summarised thus: the 25 basis point rate cut was already discounted by the market. Most had become almost certain of the rate cut after the US job market data for August indicated job creation below a critical level, where i would lead to a contraction of the labour force. A jumbo 50 point cut would have injected adrenaline. The point to watch out now is by what extent does this rate cut influence the FPIs (Foreign Portfolio Investors) to channelise their investment to the Indian market. Incidentally, the Indian equity markets which was the darling of global investors in 2024 has climbed down the attractiveness quotient before foreign investors in comparison to its Asian peers.
Limited impact likely
Sensex stood at 82,693.71 points at close of trade and indicated a rise of 1,237.37 points or 1.52% in the past five days. Nifty closed at 25,330.25 and in the past five days it rose by 344.50 points or 1.38%. Analysts attributed it substantially to the expectation of the US Fed rate cut.
“Should the Fed go for one or two additional reductions this year, global risk sentiment may improve — lifting equities, including Indian markets, while easing bond yields and pressuring the dollar,” said Ajit Mishra, SVP of research at Religare Broking, was quoted in the media as saying.
Nilanjan Dey, director, Wishlist Capital said that some sector specific stocks such as banking, financial services and IT could be impacted by the decision more than others. He said some of the top stocks of these sectors will be under watch today for the impact of Jerome Powell’s action.
A cut in policy rates in the world’s largest economy is expected to be a welcome decision from the point of view of the Indian market, but right now the tariff wall of 50% on Indian goods carries more weight than anything else. The rate of oversubscription in the IPO market and sideways movement in the secondary market in an indication that investors are ready to loosen their purse strings but are waiting for the tariff clouds to clear and the uncertainty to recede.
Powell’s position: Two more cuts probable
Interacting with the media after the Federal Reserve FOMC meeting cut the rates to take it to the range of 4-4.25% range, he indicated that the scissors might be exercised in -the next meetings in October and December. He said that the risk is now in the job market, earlier it was towards the inflation side. he also said that the pace of job creation dipped below the break-even rate which could maintain the unemployment rate constant. A rise in layoffs, which is possible due to rising uncertainty, could pave the way for higher unemployment.
Powel has resisted months of pressure by US President Donald Trump who wanted him to cut rates quickly but Powell waited for the appropriate signals to emerge form the economy. An impatient Trump has repeatedly criticised the central bank boss in harsh words.
(Disclaimer: This article is only meant to provide information. TV9 does not recommend buying or selling shares or subscriptions of any IPO, Mutual Funds, precious metals, commodity, REITs, INVITs, any form of alternative investment instruments and crypto assets.)