US Fed Rate Cut: What Does It Mean For Indian Stock Market?

The US Federal Reserve cut interest rates by 25 basis points on Wednesday while lowering the target range to 4-4.25%. This marked the first time the Fed has cut rates this year, which may have ramifications for the Indian stock market as well.

“Job gains have slowed and the downside risks to unemployment have risen,” US Federal Reserve Chairman Jerome Powell said at a press conference, signalling that inflation still remains a challenge.

US Fed's move to cut rates by 25 bps comes on the back of a wobbling labour market, as the central bank looks to focus on growth and mitigating risks to employment.

Market participants will be closely watching the spillover effect of the US Fed rate cut on emerging economies and the Indian stock market will be a key focus area.

Earlier in the day, Asian equities zoomed on the back of 25 bps rate cut, with the tech-heavy Hang Seng seeing strong gains.

Keeping that in mind, experts believe US Federal Reserve's policy cut could open the door for the Reserve Bank of India to adjust rates sooner than expected.

Talking about the US Fed's rate cut, Deepak Agarwal, CIO–Debt at Kotak Mutual Fund, said the US central bank is prioritising growth, with rising unemployment being a key driver.

“Fed action seems to be prioritising growth. FOMC reduced rates by 25 bps and is guiding for 50 bps more rate cuts in CY25. This is despite both growth and Core CPI being revised higher for Q4 CY26,” he said.

Agarwal added that the rate cut decision could reshape the yield curve as well and open up the possibility of an RBI rate cut by the end of the year.

“The yield curve in the U.S. is likely to get steeper. Fed rate cuts and lower inflation due to GST cuts increase the odds of an RBI rate cut in October 2025,” he added.

For the Indian market, the US rate cuts could provide some vital cushion, especially at a time when benchmark indices are looking to reclaim the highs of last year.

A liquidity boost, coupled with a softer dollar, may boost foreign inflows in the months ahead.

Vishal Goenka, Co-Founder of IndiaBonds.com, shares the same view, adding that RBI may cut rates given the slowdown in credit off-take. He also pointed out the slow transmission of rate cuts in the banking system.

"This clearly paves the way for RBI also to move to cut rates given the slowdown in credit off take and to spur growth in the economy. Another reason is the slow transmission of rates cuts so far in the banking system. This is due to the steep government bond yield curve as banks tend to borrow in the short term and lend for longer tenors for growth sectors," he said.

"Addressing the steep curve by interest rate cuts and balancing of government securities issuance for short periods maturities could get the desired effect of lowering borrowing costs for companies and economy in general," he added.

Catch all the live markets here for real-time updates, stock movements, and broader market trends throughout the day.