US Federal Reserve meeting day 2: What does a rate decision mean for Indian stock market?

All eyes are on Federal Reserve’s decision, which will be announced on March 20. For almost twelve months, the world has anxiously anticipated explicit signals of interest rate reductions from the Federal Reserve. However, the central bank has consistently underscored the potential for enduring elevated rates.

Currently, there are no anticipations for a cut, yet there is optimism that the Fed may opt for one in June this year. Meanwhile, inflation persists above the Fed’s targeted 2 percent.

Also read: Federal Reserve meet in focus: Will the Fed give clear signals on rate cuts? Top experts weigh in

In February, the US Consumer Price Index (CPI) indicated a 3.2 percent annual rise, slightly surpassing market projections of 3.1 percent.

The US stock market, on Tuesday, were mixed ahead of the Federal Reserve’s interest rate decision due on Wednesday. As of 9:52 a.m. Eastern Time, the Dow Jones Industrial Average had gained 42.20 points, equivalent to a 0.11 percent increase, reaching 38,832.63. Conversely, the S&P 500 had declined by 11.67 points, marking a 0.23 percent decrease to 5,137.75, while the Nasdaq Composite had dropped by 114.69 points, reflecting a 0.71 percent decrease, reaching 15,988.76.

Back home, Sensex fell 736 points, or 1.01 per cent, to close at 72,012.05 while the Nifty 50 ended the day at 21,817.45, down 238 points, or 1.08 per cent, on Tuesday.

“We expect the market to remain in consolidation mode as cautiousness persists with the commencement US Fed meeting today. While the US Fed is likely to maintain its stance and keep the rate unchanged, its commentary will hold importance as it would provide insights into the Central bank’s future rate action,” said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services.

Also read: Wall Street week ahead: All eyes on Federal Reserve’s interest rate decision

How Fed’s meeting will impact Indian stock market?

According to market experts, the Indian markets have already priced in the anticipated status quo, with attention now turning towards the Federal Reserve’s commentary for insights into the upcoming market trajectory.

“According to our analysis, the US Federal Reserve is expected to keep its benchmark overnight interest rate unchanged. However, market attention will be on the Fed Chairman’s commentary regarding the economy and future projections on interest rate cuts the full year. Indian markets have already factored in the expected status quo, with the focus shifting to the Fed’s commentary for guidance on the next market trend. On the technical side, a Nifty close below 21,800 could lead to increased pressure on the overall market, while a close above 22,300 could boost market confidence,” Prashanth Tapse, Sr VP Research analyst at Mehta Equities Ltd, told Livemint.

An indication from the Fed commentary that a rate cut is likely to be deferred to the latter half of the year due to a resistant economy, could elicit mixed views in the market as much of this sentiment is already reflected in the global market.

Also read: US Fed meet begins today: 3 key things that may influence Fed’s interest rate decision and more

“The Indian market is currently experiencing isolated volatility, driven by the elevated valuations of mid and small-cap stocks, impending national elections, a decline in retail inflows, and a slowdown in projected future earnings. Our expectation is for India to persist in its underperformance, driven by the outcome of the Fed’s policy and muted domestic trends,” Vinod Nair, Head of Research, Geojit Financial Services, told Livemint.

The experts further added that investors preferred to exit long positions ahead of the US FOMC Meeting, which will put the spotlight back on the interest rate scenario going ahead.