D-Street indices edge higher on US Fed’s jumbo rate cut

India’s two frontline stock indices climbed to all-time highs during the trading session and bond yields hit near 31-month lows on Thursday after the US central bank unexpectedly cut rates by half a percent overnight. But broad domestic gauges and export-laden technology counters fell on worries that a large-scale contraction could resume due to hitherto unknown growth challenges in the world’s largest economy.

“Since the magnitude of the cut was larger than expectations, it indicated concerns of a slowdown in growth in the US economy, which led to an early bearish reaction in markets today,” said Pankaj Pandey, head of retail research at ICICI Securities.

Wall Street rallies

Most analysts had penciled in a quarter percentage point cut in the policy rate.

The Nifty rose 0.15% or 38.25 points to close at 25,415.80, while the Sensex gained 0.29% or 236.57 points to close at 83,184.8. The Nifty midcap and smallcap gauges lost between 0.6% and 1.2%, while the technology index retreated 0.3%, the intraday shed over 1%. India’s $250-billion technology industry generates more than four-fifths of its revenue in the US. For every advancing stock, more than two shares fell.

In the US, Wall Street was buoyant with indices up 1.3-2.8% as of press time.

In India, sovereign bond yields closed at a two-and-a-half-year low, while the rupee strengthened to a two-month high, as the Federal Reserve’s first rate cut in four years raised the prospect of more future fund flows. Markets

The yield on the benchmark 10-year Indian government bond settled at 6.76% on Thursday, down 2 basis points from Tuesday’s 6.78%. Thursday’s level marked the lowest close for the benchmark 10-year government bond yield since Feb. 25, 2022, LSEG data showed. Bond prices and yields move inversely. The rupee ended at 83.68/$1.

“Government bonds have enjoyed favorable demand-supply dynamics for some time now due to the Centre’s push for fiscal consolidation and strong foreign inflows into the market due to inclusion in the JP Morgan index. Navin Singh, head of trading at ICICI Securities Primary Dealership, said the Fed rate cut now provides additional pressure to lower Indian bond yields as lower rates in the US make EM assets more attractive.

Overseas fund flow

In addition to bonds, which are benefiting from inclusion in the JP Morgan gauge, stocks have also recently found favor with foreign portfolio investors (FPIs).

Depository data shows that so far in September, FPIs have made net purchases of $3.7 billion worth of Indian stocks and nearly $2 billion worth of fully accessible domestic government bonds.

NTPC rose 2.38% on the Nifty and was among the top gainers on both indices along with Titan and Nestle India which were up 1.5% each.

ICICI Securities’ Pandey said the US Fed has forecast a further rate cut of another 150 basis points by FY26, indicating the need for rate cuts to prop up the weak economy.

on Wednesday. US markets closed lower amid profit booking after the US Fed meeting. The Dow Jones Industrial Average fell 0.25% while the Nasdaq Composite Index ended 0.31% lower. The S&P 500 index fell 0.29%
Elsewhere in Asia, Hong Kong jumped 2%, Taiwan jumped 1.68%, and South Korea jumped 0.21%. China rose 0.69% and Indonesia 0.97%.