Indian Stock Markets Soar To Record Highs Following US Federal Reserve's Rate Cut Signals

On Thursday, India's domestic benchmark indices, the Sensex and the Nifty, hit record levels following the US Federal Reserve's decision to keep interest rates steady, while also indicating the potential for three rate cuts in 2024.

The BSE Sensex, comprising 30 shares, experienced a gain of around 900 points, starting off at a new high of over 70,500.

In the early morning trades, the index saw a surge of 955 points, reaching 70,540 for the first time.

Meanwhile, the Nifty jumped up by around 240 points, or 1.1 per cent, reaching at an unprecedented high of 21,184.

This comes as the US Federal Reserve has maintained a steady interest rate of 5.25-5.5 per cent in its monetary policy. It also forecasted that the unprecedented tightening of the US monetary policy, implemented over the past two years, is nearing its conclusion and lower borrowing costs are coming in 2024.

The key point from the Federal Reserve's communication is that the tightening cycle has concluded, with the potential for three rate reductions in 2024. However, the market is anticipating four. The unprecedented surge in the Dow is likely to propel several indices to fresh highs, according to the analysts.

According to a note from IFA Global Research, the Federal Reserve members' rate expectations for December 2024 are currently at 4.6 per cent, a decrease from the previous 5.1 per cent in the earlier dot plot.

The likelihood of a rate cut in March has increased to 85 per cent, a significant rise from the previous 40 per cent pre-policy. Additionally, there is nearly a 100 per cent chance of a rate cut in May, an increase from the pre-policy probability of 75 per cent.

The plunge of the US 10-year yield to 4 per cent is expected to instigate significant capital movement towards India. The primary beneficiaries of this shift will be the large cap stocks, especially those in the banking sector that are reasonably valued.