By All eyes are on the Federal Reserve which is expected to lower interest rates for the first time this year.
While it is widely expected that the central bank will deliver a 25 bps cut, a section of analysts are also expecting a more hawkish cut of 50 bps.
For the Indian stock market, Mahendra Patil, founder and managing partner of MP Financial Advisory Services, says a 25 bps cut is already priced in, and the immediate reaction is likely to be muted even though it will be supportive for emerging markets like India, with the cut reinforcing a soft-landing narrative for the US.
A 50 bps, on the other hand, would trigger a risk-on rally globally, with equities and commodities benefitting, and India could experience improved capital flows.
With trade talks underway between the US and India, and the chiefs of both countries- PM Narendra Modi and US President Donald Trump displaying the familiar friendly rapport and bonhomie, questions have also arisen on whether a possible relaxation of tariffs could occur, and if it does, what impact could it have on Indian stock markets.
“Investor sentiment would also turn more constructive as trade tensions ease, reducing risk premiums and improving valuations in external-facing sectors,” he says.
Patil also says while the Indian markets have priced in the GST relief, some upside remains in consumption-driven sectors, which will be realised when earnings visibility improves.
Excerpts:
Fed rate decision: How will Indian markets react to a 25 bps and 50 bps rate cut
Invezz: Markets seem to be already pricing in a 25 bps cut by the Fed, but there is a section which is also expecting a larger cut of 50 bps. What kind of market impact should investors expect in both cases?
A Fed cut generally supports Indian equities via flows, liquidity, and sentiment, though the magnitude of the impact depends on whether the cut is seen as a growth-supportive move or a response to deeper US economic stress.
25 bps cut (base case): Markets have largely priced this in.
The immediate reaction would be muted, but it would reinforce a soft-landing narrative for the US, which is supportive for EMs like India.
50 bps cut: This would trigger a risk-on rally globally, with equities and commodities benefiting.
However, it could also raise concerns about underlying US growth weakness, leading to volatility after the initial relief rally.
For India, the balance of payments and currency could gain stability from improved capital flows.
Potential impact on investor sentiment if US-India trade talks lead to relaxation of tariffs
Invezz: The Indian market seems to have recovered from the blow that US tariffs dealt. With India and the US re-engaging in trade talks, what kind of upside can investors expect if there are some relaxations on tariffs?
If the US were to ease tariffs on Indian goods, it would benefit export-oriented sectors such as textiles, shrimp, engineering goods, and IT services.
While the upside may not be immediate, improved market access could support earnings growth, especially in mid-cap exporters.
Investor sentiment would also turn more constructive as trade tensions ease, reducing risk premiums and improving valuations in external-facing sectors.
GST relief priced in, but upside remains in autos, FMCG, and durables
Invezz: Has the GST rate cut positive sentiment been fully baked in by the market or do you see further upside?
The GST rate cut has already sparked short-term optimism, particularly in FMCG, autos, and consumer durables.
However, given the transmission lag, the full demand-side benefits may still play out over the coming quarters.
Hence, while the initial re-rating may be largely priced in, there remains some upside in consumption-driven sectors as earnings visibility improves with lower inflation, rural demand recovery, and higher disposable incomes.
HUL, Dabur, Britannia, Nestle, poised to capture uplift in demand among FMCG stocks
Invezz: FMCG stocks in India are in focus as several FMCG companies have said they will be passing on the full benefit of GST rate cut to consumers, and along with declining inflation, better monsoon and decreased personal income tax, demand is set for revival. What will be your top picks in the sector?
I believe consumption will see a strong revival with GST rationalisation, benign inflation, tax cuts, and a good monsoon.
Within FMCG, my top picks would be companies with a strong rural footprint and pricing power.
For instance, Hindustan Unilever and Dabur in personal care and health products, Britannia and Nestlé in packaged foods, and Marico in value-driven staples.
These companies are well-positioned to capture the uplift in rural and urban demand while maintaining margins.
Why historical low FPI shareholding in India should not be overemphasized
Invezz: FPI’s shareholding in the Indian market is at a 15-year low. What do you make of it and how much importance should be attached to it?
A 15-year low in FPI ownership reflects both global risk aversion and India’s outperformance being led by domestic institutions (mutual funds, insurers, retail investors via SIPs).
While FPI flows are important for liquidity and currency stability, the structural rise of domestic savings into equities has reduced India’s dependence on foreign capital.
Hence, while it is a data point worth tracking, it should not be overemphasized.
India’s market depth has improved significantly, cushioning against abrupt FPI pullouts.
Trading strategy for last quarter of FY: balanced allocation between quality large caps and high conviction mid-caps
Invezz: What is your market forecast for the last quarter of the FY and how to tweak bets now?
The last quarter of the fiscal year should remain constructive, supported by:
1) Expected lower inflation and accommodative monetary policy.
2) Stronger rural consumption backed by better monsoon and government capex momentum.
3) A benign global liquidity backdrop if Fed cuts materialize.
Investors should rotate selectively from overvalued defensives into value plays in industrials, manufacturing, infrastructure, and consumption-linked stocks.
Maintaining a balanced allocation between quality large caps and high-conviction mid-caps will be key.
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