Mumbai: The U.S. Federal Reserve on Wednesday announced its first interest rate cut of the year, lowering its benchmark rate by 25 basis points to a range of 4.00%–4.25%. The decision, aimed at cushioning the American economy against weakening job growth and slowing demand, sent a wave of optimism through global markets. Indian equities reacted strongly, with benchmark indices rising sharply in early trade.
The Sensex advanced over 300 points while the Nifty 50 climbed past the 25,400 mark, with information technology counters leading the charge. The Nifty IT index surged nearly 1.7 per cent, powered by buying in heavyweights such as Infosys, Wipro and LTIMindtree. Broader indices in the mid- and small-cap space also moved higher, underscoring the positive sentiment.
Gains and Caution
The Federal Reserve described the rate cut as a “risk-management” step, citing greater downside risks to employment even as inflationary pressures remain elevated. It also signalled the likelihood of two additional cuts this year if economic conditions warrant. For India, the development has important implications.
Lower U.S. interest rates are expected to draw more foreign portfolio investment into emerging markets, including India, as global investors search for higher returns. A softer dollar, which often follows Fed easing, could also help stabilise the rupee, ease imported inflation, and provide a boost to exporters. Banking and financial services are seen as beneficiaries alongside IT, as liquidity conditions improve globally.
Market participants, however, urged caution. Much of the Fed’s action had already been factored into valuations, with investors widely anticipating a 25 basis point cut. Analysts also pointed to structural challenges facing the Indian IT sector, such as muted discretionary spending in overseas markets, contract delays and pressure on operating margins. The sector may therefore see only limited fundamental improvement despite the immediate lift in sentiment.
The Fed itself struck a guarded tone. While it opened the door to more cuts, it stressed that inflation risks have not been fully tamed. This stance suggests that further policy easing will depend heavily on upcoming economic data. Indian investors will be closely watching not only the Fed’s next moves but also the Reserve Bank of India’s own approach. With domestic inflation still a concern, the RBI is unlikely to mirror the Fed immediately, creating the possibility of a divergence in interest rate trajectories.
For now, the Fed’s decision has provided Indian markets with a welcome boost, pushing indices to fresh highs and reviving risk appetite. Traders and fund managers believe sustained gains will hinge on a combination of supportive global liquidity, steady domestic growth and policy measures that bolster consumption and investment.
The rally in IT and banking shares reflects optimism about capital inflows and demand conditions, but market watchers remain mindful of underlying vulnerabilities. As global monetary policy enters a new phase of easing, Dalal Street appears well placed to benefit, provided the broader economic environment turns more favourable.
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