- Federal Reserve to cut interest rates after four years, positive for Indian stock market
Central banks were forced to increase interest rates due to inflation after the corona epidemic at the global level, but a positive trend will begin after a period of four years. A 25-50 basis point cut is likely at the Fed meeting. The rate cut by the Fed will boost foreign investment in the country, the rupee may strengthen against the dollar in the forex market and sectors like banking-finance, FMCG, capital goods may also benefit. The Fed's interest rate cut could have a generally positive impact on the Indian stock market, pointed out Parth Sandhadia of Turin Wealth Group.
India will thus benefit strongly, corporate earnings can increase along with the profitability of industries Foreign capital inflows
- Investment attractiveness: Fed rate cuts lower interest rates in the US, making the US more attractive to investors. Bonds and other fixed-income securities become less attractive. As a result, investors will divert to emerging markets like India in the hope of higher returns. Foreign investment can boost Indian stocks.
Rupee strength against dollar
- Fed rate cut may strengthen Indian rupee. A stronger rupee lowers import costs and lowers inflation, which will benefit import-dependent industries such as oil and gas and technology, increasing the profitability of these industries, which could lead to a rise in stock prices.
- Improvement in sentiment: A strong rupee will support market sentiment, especially in IT, pharma and export-oriented industries. However, profits of exporters such as IT services may come under pressure due to currency effects.
- Inflationary pressure: Rising commodity prices may increase inflationary pressure in India. Due to which the Reserve Bank of India may have to decide to tighten the interest rate. This change in domestic monetary policy may reduce some of the positive effects of Fed cuts.
- Falling global returns: Globally there will be a fall in returns which will make Indian bonds more attractive to foreign investors. Rising demand in Indian bonds may reduce bond returns.
Image Credit: (Divya-Bhaskar): Images/graphics belong to (Divya-Bhaskar).
