The Fed’s aggressive move, which brought the benchmark rate to 4.75-5 per cent, signalled progress on inflation control and sparked optimism among investors. Fed Chair Jerome Powell indicated that further rate cuts totalling 100 basis points are projected for this year.
Sharad Chandra Shukla, Director at Mehta Equities Ltd, commented, “Three cuts of 50 basis points in the next 12 months will trigger a feeling in the markets that recession fear is back. Fed will have to take the forward path cautiously.”
The rate cut decision had mixed effects on global markets. U.S. stocks initially rallied but ended lower as Powell cautioned against assuming big rate cuts would continue. Asian markets mostly rose in response to the news.
In early trading, NTPC led the gainers on the NSE, rising 3.31 per cent, followed by LTIMindtree (3.20 per cent), Wipro (2.14 per cent), Bajaj Auto (1.53 per cent), and Tata Motors (1.40 per cent). On the flip side, ONGC (-0.71 per cent), BPCL (-0.36 per cent), Bajaj Finserv (-0.29 per cent), and L&T (-0.05 per cent) were among the top losers.
The IT sector showed strength, with major companies like Wipro and LTIMindtree posting significant gains. This comes despite concerns about potential reduced demand for Indian IT services exports due to a slowdown in the U.S. economy.
Vikas Jain, Head of Research at Reliance Securities, noted, “NIFTY-50 is resisting to cross the higher band of 25,500 levels and witnessed profit booking from the higher range and expect the markets to trade volatile with respect to the weekly expiry.”
The rate cut also impacted commodity markets. Gold prices initially surged to a record high near $2,600 an ounce before settling at $2,562.40. Silver remained flat at $30.36. Crude oil futures held steady, with Brent at $73.59 and WTI at $69.86.
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Hareesh V, Head of Commodities at Geojit Financial Services, said, “The surprise rate cut suggests the US Fed is seriously taking the threat of a slowdown to the US economy could boost the safe haven demand for gold and silver in the immediate run.”
The rupee is expected to benefit from the weakening U.S. dollar, potentially making imports less expensive and temporarily improving India’s trade balance. However, Swapnil Aggarwal, Director at VSRK Capital, cautioned, “The short-term benefits for India, such as a stronger rupee and potential capital inflows, may be outweighed by challenges if the US economy continues to struggle, particularly for export-dependent sectors.”
Looking ahead, market participants are now speculating about the Reserve Bank of India’s next move. Vijay Bharadia, Founder at Wallfort Financial Services Ltd, suggested, “Given that India’s inflation rate is also on the mend for past few months, we expect the RBI to announce rate cut in its policy meeting next month, which will benefit few sectors that are leveraged such as metals and infrastructure.”
As the trading day progresses, investors will closely watch for further market reactions to the Fed’s decision and any potential ripple effects on the Indian economy. The volatile nature of the current market environment suggests that caution may be warranted despite the initial positive response.