Fed cuts rates for first time in 2025: What lower US interest rates mean for Indian stock market; top sectoral ideas

The U.S. Federal Reserve cut interest rates for the first time this year, reducing its benchmark policy rate by 25 basis points to a 4%-4.25% range. The move signalled the start of a monetary easing cycle aimed at supporting a cooling labour market, even as inflation remains high.

The Fed said future rate decisions would depend on incoming data, the evolving economic outlook, and the balance of risks. It acknowledged that economic growth slowed in the first half of the year and job gains have moderated, though inflationary pressures remain elevated.

Following the announcement, Indian markets reacted positively. The Sensex jumped 447 points, or 0.5 per cent, to day's high of 83,141.21, while the Nifty gained 117 points, or 0.46 per cent, to day's high of 25,448.95.

"25 bps it is! Finally, the Fed delivered what the people of the United States had waited for, after brief pauses in 2025. This festivity should not be celebrated right away, and one should gleam on the cascading effect of the most desired rate cut. Going ahead, the smoothing of rates would be effective only if global tariff trickery doesn't leave a big hole in the pocket of American consumers. Hence, this rate cut should not be seen as a structural move, and the Fed would need enough data before the hope for a low single-digit regime returns," said Umeshkumar Mehta, CIO, SAMCO Mutual Fund.

According to analysts, the US Fed rate cut would make emerging markets, like India, more lucrative for foreign portfolio investors (FPIs).

Puneet Singhania, Director at Master Trust Group, explained that softer US yields make Indian assets relatively more appealing to global investors. According to him, the near-term opportunities may emerge in sectors with exposure to overseas borrowings and export-driven businesses, which stand to gain from cheaper financing and renewed global demand.

Echoing this sentiment, Dhiraj Relli, MD & CEO of HDFC Securities, remarked that “the Federal Reserve rate cut will make emerging markets like India more attractive for yield-seeking investors."

He further stated that the current consolidation presents excellent buying opportunities within the broader uptrend, allowing investors to accumulate quality stocks.

“India's structural growth story remains intact as one of the world's fastest-growing economies, supported by strong demographics, rising middle-class consumption, thriving start-up ecosystem, and ongoing reforms. With H2FY26 expected to drive earnings recovery, improved corporate performance will lead to higher stock prices,” Relli added.

Rajesh Palviya, SVP – Research at Axis Securities, said the dovish Fed stance is expected to lower borrowing costs and encourage consumer spending in the U.S. markets, which could lead to gains in equities, bonds, and real estate.

However, some volatility may persist due to internal divisions, he noted.

Back home, he expects the Fed's actions could attract foreign capital, strengthening the rupee and benefiting stock indices like the BSE Sensex and NSE Nifty.

He believes several sectors, including Banking, Financial Services, and Insurance (BFSI), Information Technology (IT), Metals, and Domestic Consumption (FMCG, Retail, Durables), are positioned for potential gains.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.

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