US rate cut announcement: Indian markets set to respond positively

Mumbai, Aug 24
Buoyed by positive US economic data and other global cues, the Indian stock markets continued their recovery rally this week. With the US government now confirming a rate cut (most likely in September), domestic markets are anticipated to respond positively to the development on Monday.

With Federal Reserve Chair Jerome Powell saying that "the time has come" for a monetary policy adjustment, US markets rallied on Friday, with the S&P 500 index posting gains that took it closer to a fresh record high.

A rate cut of up to 25 bps in September will be taken positively by the market in the short-term, according to market watchers. Further trend will depend on the optimistic view of the central banks that the accommodative policy will be sustained, guiding further cuts in the coming policies.

Indian sectors that might benefit from a Fed rate cut are IT, BFSI, auto and realty. Overall, said experts, the rate cuts will be welcomed positively by the Indian markets as the RBI is following the US Federal Reserve's lead when it comes to interest rates.

For Indian markets this week, positive global sentiment from ceasefire talks between Israel and Hamas, along with a decline in crude prices, contributed to the rally.

However, inflationary pressure in Japan and the appreciation of the Yen tempered the market’s gains at the end.

According to market experts, IT stocks, which are reliant on the US market, ended marginally flat due to profit booking post the initial rally.

PSU banks fully recovered losses from the last week, while mid- and small-cap indices outperformed the broader market.

On Friday, the Indian equity indices closed flat. At closing, Sensex was up marginally by 33 points at 81,086 and Nifty was at 24,823 with a gain of 11 points.

The broader market trend remained positive. On the Bombay Stock Exchange (BSE) 2,061 shares were in the green and 1,878 shares in the red and 109 shares closed without change.

The foreign institutional investors (FIIs) bought equities worth Rs 1,371 crore on August 22, while domestic institutional investors also bought equities worth Rs 2,971 crore on the same day.

Meanwhile, speculation has abounded over the possibility of a rate cut in the US at the Federal Open Market Committee (FOMC) meeting slated for September 17-18.

The US key rate has remained unchanged at the range of 5.25 to 5.50 per cent since a quarter percentage point increase to the current level in July last year.