Nifty Hits Initial High After US Fed Rate Cut, Massive Sell-Offs In Mid-Cap, Small-Cap Stocks Follow

As the US Federal Reserve announced a 50 basis points (bps) reduction in the benchmark interest rate, marking the first cut in four years, the Indian benchmark indices hit a record high at the time of opening on September 19, 2024, with the Nifty touching a high of 25,611 before falling back.

The rate cut decision was also in line with Wall Street estimates. At present, the Nifty is trading 23 points higher than yesterday’s close at 25,400 points as of 2:43 pm. There was a significant sell-off in mid-cap and small-cap stocks, with the Nifty Midcap index dropping over 1,300 points.

US Fed policymakers anticipate a further 0.5 per cent reduction in the benchmark interest rate by the end of this year, and an additional 1 per cent reduction in 2025, and a final 0.5 per cent reduction in 2026.

Says Trideep Bhattacharya, president and CIO-equities, Edelweiss Mutual Fund: “The Fed rate cut was deeper than expected. The change in the US economic forecasts indicate a soft patch than recession and paves way for rate cuts in the emerging markets, which is positive for capital flows into emerging markets.”

Looking Ahead: What May Happen In Indian Markets?

Though the Fed indicated rate cuts moving ahead, experts feel the Fed will wait for data before deciding on further rate cuts, and have predicted smaller and spaced-out cuts. Overall, they expect India to remain insulated from global rate movements.

Says Deepak Ramaraju, senior fund manager, Shriram Asset Management Company (AMC): “The Fed will wait for incoming macro data before making the next monetary decision. Future rate cuts is likely to be smaller and more spread out, adding to uncertainty in the equity markets. The markets reacted negatively and ended in the red. We can expect the broader emerging economies to undertake rate-cut decisions. On the domestic front, the Reserve Bank of India (RBI) will focus on the data and might likely undertake a rate cut in December 2024 or Q4 FY 25. The foreign institutional investor (FII) flows can be outbound in the short-term, and as the dollar starts easing, the flows can come back into India. The markets are expected to be range-bound with a positive bias.”

Says Avnish Jain, head-fixed income, Canara Robeco Mutual Fund, “The Federal Open Market Committee (FOMC) is forecasting a further 50 bps rate cut in 2024, but the language was nuanced and less dovish. It gave positive outlook on growth while noting that inflation is near 2 per cent target but remains elevated. Markets were not enthused by the overall policy outcome, which may have been perceived as less dovish, and US yields were higher than the lows seen in recent weeks. Going forward, incoming data is likely to dictate further rate actions.”

Says Vishal Goenka, co-founder, IndiaBonds.com, “The US Fed did a historic 50bps rate cut overnight. This was well-priced and both US equities and bonds were lower at the close of the day after the initial rise. Fed chair Jerome Powell delivered a ‘hawkish’ cut as per the market and mentioned that future course of action will remain data dependent. India has remained well-insulated from the rest of the world’s rate movements for now, and the tremendous rally in risk assets along with the projected economic growth will keep an inflationary underlying force in the economy. The RBI monetary policy committee (MPC) will meet next month, and a rate cut may remain elusive for now, and perhaps not yet required in India.”