Fed cuts interest rates: Indian stocks, rupee, and gold prices likely to benefit on September 19

The US Federal Reserve, on Wednesday (September 18), enacted its first interest rate cut in four years. In a much-anticipated move that was widely in line with market expectations, the Fed cut the interest rates in the country by 0.5 per cent, bringing it in the range of 4.75-5 per cent.

The impact of the lowering of the benchmark lending rate is expected to have an impact the world over. India is no different.

The stock market, Indian rupee, and gold price are all likely to do better.

Here’s a look at what can be expected from these three on Thursday (September 19):

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Indian stock market: A rate cut in the US typically results in increased foreign inflows into emerging markets like India. Since the rate of interest from deposits in the US fall, investors tend to seek higher returns elsewhere, including in Indian equities. Sectors such as IT, financials, and export-oriented industries, which benefit from a weaker dollar and lower borrowing costs, are expected to see gains.

The benchmark Indian indices, Sensex and Nifty 50, both touched record highs on Wednesday before dropping due to profit-booking. Some analysts anticipate a rally in the Nifty 50 and Sensex due to the increased liquidity flowing into the Indian market.

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Indian rupee: A lower interest rate in the US often weakens the dollar, which can lead to a stronger Indian rupee. The appreciation of the rupee can reduce import costs, benefiting sectors that rely on foreign inputs, such as manufacturing and oil. The potential influx of Foreign Institutional Investor (FII) funds could further strengthen the rupee.

Gold prices: Gold prices are also likely to rise following the Fed’s rate cut. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive for investors. Moreover, a weaker dollar generally boosts the demand for gold, as it becomes cheaper for holders of other currencies. In the Indian market, gold could see heightened demand, driving up prices in the short term.