The domestic market is expected to open flat on Thursday after the US Federal Reserve finally announced the much-awaited 50 basis points interest rate cut. Analysts said the market has already priced in a 50 basis points rate cut. However, they added that the consolidation phase is likely to continue.
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Madhav Arora, economist at Emkay Global Research, said the Fed kicked off its easing cycle with a somewhat surprising 50bps cut, with the FOMC implicitly acknowledging that it may have kept interest rates higher than necessary. “Despite the significant cut, Chairman Powell emphasised that the economy remains strong and 50bps is not the pace of easing going forward. The dot plot was also lowered, with the pace now more in line with a soft landing scenario rather than a recession. The contradiction between a significant rate cut and a healthy economy has proved difficult to justify, with markets anticipating much greater easing than expected and the US Treasury yield curve bear steepening as Chairman Powell has advised against any further significant rate cuts. “This start of the easing cycle also gives EMs some space to kick-start their easing cycles, but with low global volatility so far, the Reserve Bank of India is likely to remain focused on domestic developments and deliver its first rate cut by December,” she added.
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Increase FPI inflows
Nilesh Shah, managing director, Kotak Mahindra AMC, said: “The US Fed kicked off the rate cut cycle with a 50 basis points cut in line with changing market expectations. From inflation being temporary to prolonged high interest rates, the Fed has come a long way to meet market expectations. This latest rate cut will encourage inflows into emerging market assets due to a weaker dollar and lower interest rates,” he added.
The GIFT Nifty was ahead at 25,390 against Nifty futures, which closed at 25,393 on Wednesday, while US stocks ended negative after the announcement. However, Asia-Pacific stocks were mixed. Japanese stocks were up around 2% while South Korean stocks were down and Australia and other countries were flat.
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Osho Krishan, Senior Analyst, Technical & Derivatives, Angel One, said: “Going forward, the overnight developments in the US Fed interest rate decision outcome are expected to have a significant impact on global markets and are likely to determine the medium-term trend of our indices. In this context, maintaining caution and a pragmatic approach is crucial in the current situation.”
Derivatives analyst Dupesh Dhameja of Samco Securities said the options market is showing a neutral stance, with call and put selling balancing the positions. The Put-Call Ratio (PCR) has fallen from 0.98 to 0.90, indicating a shift in sentiment from bullish to sideways, as both call and put selling are balancing the positions. Max Payne is at 25,300, indicating this is a key pivot level for future market movements, he added.
