Fifty of the 78 announcements by the US Federal Reserve in the last 34 years has led to a positive change in Nifty the following trading day. The median Nifty return on the day after the Fed announcement is -0.2 per cent, a study by Capitalmind Financial Services said.

The Fed announced a 50- basis point (bp) rate cut 10 times in the last three decades, which has resulted in a median return of 1.6 per cent for the Nifty. A 25-bp cut has been followed by -0.5 per cent median Nifty returns. The most frequent Fed action has been an increase of 25 bps, which has been done 39 times over the last three decades.

There are outliers as well. The nearly 7 per cent drop in October 2008, following a 50-bp cut in the middle of the meltdown during the global financial crisis, is a case in point.

The US Fed has had six alternating easing and tightening cycles over the last 34 years. For Indian markets, the most productive cycle was the US Fed’s easing cycle from July 1990 to February 1994, where Nifty witnessed a gain of 310 per cent, the study said. The tightening cycle from June 2004 to September 2007 led to gains of 202 per cent. The only stretches of negative Nifty returns came during tightening cycles in February 1994 to July 1995 at -23 per cent and March 1997 to September 1998 at -14 per cent.

“While easing US interest rates are directionally positive for equities in general, we should keep in mind interest rates are just one variable in a complex adaptive system that determines the direction of Indian equity markets,” said Anoop Vijaykumar, Investments and Head of Research, Capitalmind.

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