Indian Stock Market Hits Record High After US Fed Interest Rate Cut

US Fed Interest Rate Cut: On Thursday morning, the Indian stock market surged to an all-time high following a significant decision by the US Federal Reserve to cut interest rates by 50 basis points (bps). By 9:20 am, the Nifty index had risen by 0.68% to reach 25,551.65, while the Sensex climbed 0.71% to 83,542.65. This positive movement reflects strong investor confidence following the Fed's rate cut.

Global Impact and US Market Response

The US stock market, represented by the Dow Jones, experienced mixed reactions. Initially, it surged after the announcement but later dropped, erasing 479 points to close slightly lower at 41,503.10. Despite this, futures trading on Thursday morning suggested a potential rebound, with Dow Jones futures up by nearly 0.5%.

Effect on Indian Market and Analysts’ Views

The rate cut was widely expected by the market, with predictions ranging from 25 to 50 bps. According to some experts, this move could lead to profit booking, but others believe it will be beneficial for emerging markets like India. The reduced rates may attract more foreign investments to India over time.

Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, highlighted that sectors like real estate, automobiles, and non-banking financial companies (NBFCs) would likely benefit from the US Fed's decision. The ripple effect may influence other global central banks to follow suit.

Inflows and Market Performance

Foreign Institutional Investors (FIIs) have injected ₹73,782 crore into Indian stocks so far this year, while Domestic Institutional Investors (DIIs) have invested ₹3.2 trillion. The Nifty 50 index has delivered a solid 16% return since the general elections began in June, showcasing strong market performance.

However, Sanjeev Prasad, MD and co-head of Kotak Institutional Equities, urged caution. He believes large-cap stocks are "overvalued," while small, mid, and micro-cap stocks are even more expensive. He pointed out that banks within the large-cap space offer the most value currently, as the Nifty’s price-to-earnings (PE) ratio of 23.08 is above its historical average.

Future Outlook and Expert Opinions

Market experts, such as Ajay Bagga, foresee more inflows into emerging markets like India following the Fed rate cut. He explained that India has already been receiving a 20% share of the MSCI Emerging Market Index flows, and this trend is expected to strengthen.

The impact of the US Fed's decision is likely to influence global central banks, with many expecting the Reserve Bank of India (RBI) to follow suit. Bagga predicts that the RBI may cut rates by 75 bps over the next 12 months, which would benefit sectors like real estate, financial services, and automobiles.

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However, not all experts are optimistic. Aashish Sommaiyaa, CEO of WhiteOak Capital Asset Management, acknowledged that while the rate cut is a positive development, it raises concerns about the overall health of the American economy. A weakening US economy could lead to more uncertainty in the global market.

The Indian stock market's rise to record levels reflects positive investor sentiment following the US Fed's rate cut. While the outlook for foreign investments remains strong, experts advise caution, especially with concerns over market valuations and potential economic impacts in the US. Investors should stay informed and consider sector-specific opportunities as global economic conditions continue to evolve.