Indian equity indices including Sensex, Nifty, and mid and smallcap indices rallied significantly in response to the US Federal Reserve's decision to pause on the benchmark overnight interest rate at 5.25%-5.50%. The market reaction was catalyzed by statements from Fed Chair Jerome Powell indicating a cautious approach toward observing job and price data before the December policy meeting. This has led to market speculation about potential rate cuts starting as early as June next year.
The market has now priced in only a 20% chance of a December rate hike, which has resulted in lower 10-year and two-year US Treasury yields. Amidst high interest rates and elevated inflation, SAMCO Mutual Fund recommends a "wait and watch" approach akin to the US Fed's strategy.
Despite ongoing geopolitical tensions, such as the Israel-Hamas conflict, there is an optimistic outlook for Indian markets. Geojit Financial Services suggests that if foreign institutional investors, who were previously responsible for selling over ₹39,000 crore (INR100 crore = approx. USD12 million) of Indian stocks, become buyers again, it could trigger a market short covering.
However, caution is advised SAMCO Securities. They warn of potential market pressure as markets adjust to the ongoing rate hiking cycle and the reality that interest rates are not set to decrease rapidly.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.