India’s stock markets are trading mixed after the US Federal Reserve delivered a third straight interest-rate cut, as investors tracked cues on progress of a India-US trade deal that’s been a WIP for months.
On Thursday, the 30-share BSE Sensex opened 0.17% higher only to reverse the gains to trade 0.26% lower. The NSE Nifty 50 also advanced 45.05 points but slipped 50.90 points soon after. That, after the Wall Street settled higher after a divided US Federal Reserve cut the federal funds rate by 25 basis points to a range of 3.5-3.75 per cent in its December meeting.
One basis point is one-hundredth of a percentage point.
“Persistent weakness in the rupee and worries over delay in any meaningful progress in India-US trade talks have prompted profit booking,” Ponmudi R., chief executive of Enrich Money, told Reuters.
Impact of US Fed rate cut on India’s stock market
“We do not think the Fed’s move will have a major impact on the Indian stock market,” G. Chokkalingam, the founder and head of research at Equinomics Research Pvt. Ltd., said in a note Thursday. “The domestic market is struggling with liquidity problems due to the flood of IPOs. The IPO rush needs to fizzle out for the stock market to sustain gains.”
India’s stock market is currently weighed down by two factors: relentless selling by foreign instutional investors in the absence of a India-US trade deal and weak corporate earnings over the past six quarters.
On Wednesday, net FII outflows stood at ₹1,651 crore while net DII inflows stood at ₹3,752 crore, according to stock exchange data. So far this year, FIIs are net sellers, offloading Indian equities worth ₹2.72 lakh crore. Domestic investors have bought shares worth ₹7.33 lakh crore over the same time period—thanks to the record-breaking year for IPOs in India.
Impact of US Fed rate cut on Rupee
The rupee depreciated 17 paise to 90.11 against the US dollar in early trade on Thursday as prevailing risk-averse market sentiment, compounded by high dollar demand from importers, dented investor sentiment.
Forex traders said the rupee is likely to trade with a negative bias on muted domestic markets and sustained foreign fund outflows. Investors are also awaiting cues from the US-India trade talks.
“The US Trade team has said that they have got the best proposal from India which could show up as positive for the rupee, though overall we may see it crumble under the short positions once the trade deal is finalised,” Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP, told Press Trust of India.
While Fed Chair Jerome Powell’s balanced outlook eased market nerves about a hawkish message, the rate cut “alone cannot offset the structural headwinds for the Indian rupee from higher tariffs and U.S. yields”, said Rajeev Sharan, head of criteria of model development and research at Brickwork Ratings.