Investors in financial markets, including those in India, are eagerly awaiting cues from the upcoming US monetary policy review meeting scheduled for September 17-18, 2024. US Federal Reserve Chair Jerome Powell has hinted at the need for the central bank to reduce interest rates to align with inflation targets. While it is likely that the US central bank will ease its monetary policy, the extent of the interest rate cut remains uncertain. Uncertainty persists among investors, with some expecting shallow cuts while others anticipate deeper cuts. The upcoming FOMC meeting is expected to kickstart the rate-cutting process for the US Fed.
With inflation being a point of concern for US policymakers, recent data showed a steady decline in the inflation rate towards the targeted 2%. The upcoming FOMC meeting will be crucial for market direction, along with the progress of domestic corporate earnings in Q2. Foreign portfolio investors have increased their investments in India in anticipation of better returns amidst the possibilities of US interest rate cuts. While high valuations in India remain a concern, the Indian market has shown resilience and strong momentum, attracting foreign investment.
Indian markets have surged to record highs this week, buoyed by positive global cues. The outcome of the upcoming US Fed meeting on September 18, with a 25 bps rate cut already priced in, is not expected to trigger a significant market reaction. The Fed’s guidance on inflation, growth, and future rate cuts will be crucial in shaping the broader market sentiment. A 50 bps rate cut could potentially spark a positive reaction, particularly in emerging markets like India. However, concerns about the underlying strength of the US economy may arise in the event of a larger rate cut.
Ajit Mishra from Religare Broking advises investors to focus on IT, real estate, and metals for long trades, along with banking and financial sectors. Monitoring wholesale inflation data domestically will also be vital for investors. The Indian market’s strong performance and the possibility of interest rate cuts in the US are driving foreign investment flows into the country. As investors await the outcomes of the US monetary policy review next week, market sentiments will largely be influenced by global cues, domestic corporate earnings, and the Fed’s guidance on future rate cuts.
