India’s equity market cheered the US Federal Reserve’s first rate cut of 2025, with the Sensex and Nifty closing at their highest level since early July. The 25 bps cut fuelled hopes of more easing this year and speculation that foreign institutional investors (FIIs), who have been on a relentless selling spree, may return as softer US rates weaken the dollar and bond yields, making emerging markets such as India more attractive.
Further, renewed hope of an India-US trade deal, and expectations of consumer spending post the GST reform lifted sentiment. The Sensex rose 320 points to finish above 83,000 at 83,013.90 on Thursday, while the Nifty50 gained 93.35 points to close at 25,423.60.
Rajesh Palviya, SVP - Research, Axis Securities, said that the Federal Reserve’s decision reflects a cautious approach to support the labour market amid increasing employment risks.
“The dovish stance is expected to lower borrowing costs and encourage consumer spending in the U.S. markets, which could lead to gains in equities, bonds, and real estate. However, some volatility may persist due to internal divisions. In India, the Fed's actions could attract foreign capital, strengthening the rupee and benefiting stock indices like the BSE Sensex and NSE Nifty,” added Palviya.
He stated that this favourable environment may help ease inflationary pressures and provide the RBI room for adjustments, although exporters might face challenges from currency strength.
“When combined with domestic factors, including the RBI's earlier interest rate reductions, specifically a 50 basis point cut in June 2025 and another cut in April, as well as GST rate rationalization and various measures to boost consumption, the outlook for India's economy appears strong,” said Palviya.
Global equity markets also traded in the green after the Fed reduced rates by 25 bps to 4–4.25% and signalled two more reductions this year to cushion rising job market risks. Analysts at large believe that the rate cuts are positive for the Indian market.
Aruna Giri, Founder & CEO at TrustLine Holdings, said that if the U.S. payroll data continues to be weak in the coming weeks and months, one is likely to see more cuts this year by the Fed, which will be hugely positive for FII flows into emerging markets, including India, as such cuts will put pressure on the dollar index. One needs to watch out for any major weakness in the weekly payroll data for cues on the future rate cuts, added Giri.
FIIs have sold off Indian stocks worth ₹1.06 lakh crore in the cash segment since July, as per depository data. Tariff-related uncertainties, weakness in rupee, weak quarterly earnings and stretched valuations played a major role in their exodus from the local market.
Vinit Bolinjkar, Head of Research, Ventura, said that the 25-basis-point rate cut, responding to a softening labor market and inflation above 2%, injects liquidity into global markets and for emerging economies like India, this sparks opportunity and risk.
“A weaker U.S. dollar drives capital inflows through carry trades and FDI, boosting India’s stock market and supporting its 7% GDP growth trajectory. However, currency volatility and imported inflation pose challenges, requiring careful policy navigation to ensure sustained economic gains,” he added.