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US Fed Rate Cut: Amid heightened volatility, analysts suggest monitoring key support levels and exercising caution.
Global markets remained under pressure, contributing to the weakness in Indian equities. (Representative image)
Fed Rate Cut Impact On Indian Stock Market: Indian equity markets witnessed a sharp sell-off on Thursday morning, with benchmark indices tumbling significantly in early trade. Global markets, including India, saw sharp sell-offs as the Fed Chief’s warning about slower-than-expected rate cuts in 2025 spooked investors.
The BSE Sensex dropped 1,162.12 points, or 1.45%, to 79,020.08, while the NSE Nifty declined by 328.55 points, or 1.36%, to 23,870.30.
The US Federal Reserve announced another 25 basis point reduction in key interest rates on December 18, bringing the range to 4.25–4.50%.
Addressing reporters after the policy announcement, Fed Chair Jerome Powell highlighted the resilience of the US economy. “The US remains strong overall. The unemployment rate is projected at 4.2% this year and 4.3% over the next few years. Inflation has eased significantly over the past two years but remains slightly above our 2% longer-run target,” Powell stated.
This marks the third consecutive rate cut by the FOMC in as many months. The cycle began in September with a 50 basis point reduction, followed by a 25 basis point cut in November. Prior to this, the Fed had maintained rates unchanged for nearly four years before initiating the current easing cycle.
The latest move reflects the Fed’s ongoing efforts to balance economic growth with inflation control. Analysts will closely monitor the impact of this decision on global markets and domestic economic indicators.
How US Fed Rates Affect India’s Stock Market
Subho Moulik, Founder & CEO, Appreciate, noted, “The US Fed cutting benchmark rates by 25 basis points to between 4.25% and 4.5% is usually positive for the market.”
However, he added that the Fed’s hawkish stance of reducing the number of rate cuts from previously anticipated four times to twice next year due to low unemployment rate and sticky inflation may put investors on edge.
Impact on Indian Investors
The Fed’s stricter stance will not be music to the ears of Indian equity investors, Moulik pointed out. “The potential for reduced foreign capital inflows is a concern, as the US debt market, with its more attractive returns, becomes a stronger alternative. This triggers the likelihood of a near-term pullback in the market.”
Large-cap Fund
Moulik added that in times of market uncertainty, large-cap stocks are often seen as a safe bet. “However, with FIIs typically invested more in the larger Indian companies, these stocks may not be entirely insulated from potential outflows.”
“As such, investors may need to consider sector-specific strategies. Export-oriented sectors, such as IT and pharmaceuticals, can be pockets of strength. They could provide a greater margin of safety during this time. As for mid and small caps, they are already at somewhat elevated valuation levels.”
“Identifying the right companies will require a lot of precision, as they are the most prone to market corrections. That said, the blip is not a structural one. The India growth story is a long-term play. The market will eventually catch its breath, offering savvy investors a chance to buy quality companies on the dip,” Moulik added.
Global Market Sell-Off and Bond Yields Spike
Apurva Sheth, Head of Market Perspectives and Research at SAMCO Securities, emphasized that the Fed’s cautious outlook has rattled global markets. “Though the US Fed cut interest rates by 25 basis points, Fed Chair Jerome Powell’s warning of slower rate cuts next year triggered a spike in US 10-year bond yields above 4.5%. The Dow Jones marked its 10th consecutive loss, while the S&P 500 nosedived by 3% in a single session,” Sheth explained.
Sheth cautioned that if bond yields continue their upward trajectory, US markets could see further corrections as 2025 approaches. “Indian markets won’t have much of an option but to follow global cues,” she said, adding that inflation remains a key concern globally despite easing slightly due to the high base effect.
Investor Outlook
Amid heightened volatility, analysts suggest monitoring key support levels and exercising caution. Sectoral and stock-specific strategies are expected to dominate trading patterns as markets await clarity on global and domestic economic cues.
