India's equity market benchmarks – BSE Sensex and NSE Nifty50 – opened on Thursday at record highs, with both indices up 1% from the previous session's closing, following the Federal Reserve's decision to lower interest rates by 50 basis points (bps). However, the market failed to sustain this momentum, as concerns over a potential economic slowdown in the US took hold.
The BSE Sensex reached an intraday high of 83,773.61 but ultimately closed 236.57 points, or 0.29%, higher at 83,184.80. Meanwhile, the Nifty50 touched a historic high of 25,611.95 before finishing Thursday’s session 38.25 points, or 0.15%, higher at 25,415.80.
Broader market indices faced heavy selling pressure, with small-cap shares experiencing the most significant declines. The Nifty Smallcap 100 index dropped by 1.26%, while the Nifty Midcap 100 index fell by 0.67%.
"FOMC has started the new rate easing cycle with a 50 bps rate cut to 4.75-5%, but markets did not seem pleased about it. The broad sense has been that the 50bps cut is a sign of a slowing economy and is the Fed’s wake-up call. Equity markets fell (after a short rally), Gold was flat, silver rallied, and the US 10-year remained sticky," said Ankita Pathak, Chief Macro & Global Strategist at Angel One Wealth.
Pathak also noted that the US economic outlook for 2024 had worsened, with unemployment now projected to rise to 4.4%, compared to the 4% estimate from June. Federal Reserve Chair Jerome Powell, in a press conference, sought to reassure investors, maintaining that the Fed was focused on avoiding a recession while also achieving its inflation target.
Powell further emphasised that the 50bps cut should not be seen as a new norm, describing it as a “recalibration” rather than a recurring action.
“Previous rate cuts have co-existed with market corrections and economic recessions. We believe a soft, bumpy landing is rather a possibility this time around, and therefore we prefer a defensive tilt to portfolio allocation,” Pathak suggested.
Angel One Wealth pointed out that the dot-plot indicated two more 25bps cuts this year, which would bring the range to 4.25-4.5%. Another 100bps cut is anticipated for 2025. "We expect that recession can still be avoided and will continue to actively track economic data.
Globally, emerging markets will now have more space to cut rates for their own economic stimulation. RBI is likely to deliver a cut in 2024," the domestic firm added.
Amit Golia, Group CEO of MarketsMojo, believes that the markets may have already priced in the rate cut and are now looking for other signals. In the Indian market, Nifty has climbed 2.1% over the past 10 days in anticipation of the Fed’s rate cut.
“Additionally, crude oil prices are trading at 52-week lows, and essential metals like iron ore and steel are hovering near multi-year lows—clear indicators of a slowing global economy.
Looking forward, markets may shift their focus to how these rate cuts affect corporate earnings and broader economic health, especially if global demand continues to weaken,” Golia added.
Yogesh Kalwani, Head of Investments at InCred Wealth, said that equities (risky assets) are likely to perform well amid the US monetary policy normalisation, although volatility remains a concern, especially given the risk of a hard landing for the US economy.
Regarding Indian markets, InCred expects that the Fed's pivot could encourage the RBI to change its stance and initiate a repo rate cut during the December 2024 policy meeting.
“In the Indian equity markets, given valuations are above long-period averages, we may see consolidation in broader markets, with investors shifting their preference towards large-cap and value stocks,” Kalwani noted.
Among the top performers in the Nifty50 pack were NTPC (up 2.38%), Titan (1.82%), Nestle India (1.77%), and Kotak Mahindra Bank (1.76%). However, PSU stocks such as BPCL (-3.41%), Coal India (-1.52%), and ONGC (-1.34%) were among the major laggards.
Vodafone Idea recorded its largest single-day drop since January 2022, plummeting 19% to close at Rs10.44 apiece after the Supreme Court rejected its plea concerning AGR dues. Indus Tower also plunged by over 8.2% following the same ruling.