US Fed rate cut: A rate cut by the US Federal Reserve is traditionally seen as a positive for emerging markets like India, because lower US interest rates are expected to reduce the attractiveness of US debt and push global investors toward higher-yielding, riskier assets such as EM equities and bonds.
While the theory remains in place, the history suggests otherwise. The last five instances of US Fed rate cuts alone show that Nifty 50 has declined in three sessions the immediate next day, and lost in four of five instances within a week, with an average loss of 1.07%.
| Fed rate cut impact on Nifty 50 | |||
|---|---|---|---|
| Rate cut date | Interest Rate | Nifty 1-day change | Nifty 1-week change |
| Sept 18, 2024 | 5% | 0.15% | 2.40% |
| Nov 7 2024 | 4.75% | -0.20% | -2.75% |
| Dec 18, 2024 | 4.50% | -1.02% | -1.85% |
| Sept 17, 2025 | 4.25% | 0.36% | -1.07% |
| Oct 29, 2025 | 4% | -0.67% | -2.08% |
Now, the Federal Reserve is again anticipated to announce a rate cut today, December 10, following the conclusion of its two-day meeting, with traders now seeing an 87.4% chance of a 25-basis-point cut, as per a Reuters report.
Yet, the global temperament remains cautious as the verdict might be split and a hawkish commentary might dampen market mood ahead. The Nifty 50 is poised to end lower for the third session as investors choose to remain on the sidelines.
Therefore, any expectation that if the Fed delivers a rate cut then the market should bounce back should be taken with a pinch of salt.
“The Fed’s anticipated rate cut tonight is being read as a bullish cue, but the context suggests something far more complicated. Historically, the Fed eases when growth weakens, liquidity tightens, or financial conditions become strained — not when equities, real estate and commodities hover near record highs,” said Harshal Dasani, Business Head at INVAsset PMS.
Why are Fed rate cuts unable to cheer Indian stock market?
Analysts list several factors why the Fed rate cut doesn’t equal to a rally in the Indian stock market.
1. Small rate cuts don’t matter much
G Chokkalingam, Founder, Equionomics Research, said that a 25 basis point or 50 basis point cut does not have much impact on the Indian stock market, as what matters is the cumulative cut and the direction.
When cumulatively the Fed is on a big downward cycle, then it will have a positive impact because the opportunity for emerging India looks to be better, he said.
Citing the trend of the last 20 years, the market veteran said that when an aggressive rate cut happens in the US, that is a time for some problem, like Covid, the Lehman crisis, etc. “So downward cycle to some extent has an impact on the Indian market because there is a problem with the US economy itself. That is why the reversal of the cycle is very aggressive. When the reversal of the cycle is aggressive, that may have some implications for the Indian economy also in terms of export, rupee, because outflows will be there,” he added.
2. Low correlation between US and Indian market
Explaining the second reason, Chokkalingam said the correlation between US market and the Indian market is not very strong and keeps changing basis global and domestic factors.
“For instance, from almost 0 at the bottom, interest rates in the US went up to 5.25%. But in that aggressive upward cycle, did it impact the Indian market? Absolutely not. The Indian market, in the process, hit the peak. By September 2024, Indian markets moved close to record-high levels of market cap. So in that period — the preceding 12 months — the US had the highest Fed rate in recent times,” he added.
3. High-risk, low-return conundrum
Investors should also understand that the money that reacts to US interest rates is debt money, not equity money. “Investors who shift funds because of US rate changes are usually debt investors, not equity investors. They may put money into Indian bonds, but rarely into Indian stocks,” he added.
Additionally, foreign investors know that the rupee depreciates 3–5% every year on average. That’s already equal to the return they get on US bonds, thus dimming the Indian stock market appeal.
4. Latest rate cut signals signs of economic stress
Lastly, analysts believe that the current rate cuts come at a time when markets and commodities are strong, and are a way for the Fed to mitigate economic stress from the tariff hikes imposed by Trump government.
“A cut in an otherwise ‘overheated’ asset environment usually signals that the underlying economy is facing pressures the market has not fully priced in. In past cycles, early cuts outside a recessionary declaration often preceded deeper slowdowns rather than new bull legs, because they reflect policy-makers trying to cushion deteriorating demand or credit stress,” said Dasani.
As the US is hiking the import duty across all major products against all major exporting countries to the US, the US consumers will be hit, according to Chokkalingam. “US consumer is the main dominant driving force behind economic growth. So the economic growth is impacted. That is why they want to give priority to growth by cutting down the interest,” he added.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
