US Fed rate cut: Despite the US Federal Reserve’s much-anticipated rate cut, the Indian stock market reaction was muted. The benchmark indices opened on a flattish note and remained volatile since. At one point, the Sensex was down 0.28% at 84,150, while the Nifty 50 breached the 25,700 mark.
At the time of writing this report, while some buying was visible, it was muted, especially in light of the third consecutive rate cut by the US Fed and the three-day selling pressure seen in the earlier sessions this week.
The Nifty and Sensex have lost about 1.6% in the last three sessions on persistent foreign selling, which also dragged the rupee to a record low earlier in December.
Fed policy meet outcome
The Fed, for a third consecutive meeting, cut its policy rate by 25 bps to 3.5-3.75%, as widely expected, prompted by the risks to the labour market.
The rate cut followed despite inflation remaining elevated and policymakers being cautious about potential tariff-related pressures.
In comments following the announcement, Fed chief Jerome Powell said the US central bank’s interest rate policy is well-positioned to respond to what lies ahead for the economy, but he declined to guide on whether another interest rate cut lies in the near future.
Why is the market not cheering Fed rate cut?
The median dot looks for one cut in 2026 and another in 2027, unchanged from September 2025, while the market is now pricing in nearly three cuts through to the end of 2026.
However, what’s concerning is the decision to cut by 25 basis points drew three dissents, underscoring a potentially tricky policy path in the coming months, according to analysts.
According to Emkay Global, given expected growth resilience and elevated inflation, Powell’s remarks raise the bar for future cuts. “The additional cut(s) in 2026 are now well tied to how shaky the labour market is ahead. But the cut cycle is mostly over. We reckon the US labour market may remain soft till the tariff pass-through is complete,” it added.
Analysts largely believe that the Fed rate cut is unlikely to meaningfully spark a recovery for the Indian stock market as structural headwinds like a weak rupee, FII selling and doubt over the US-India trade deal linger.
The Fed decision, though favourable from the market perspective, is unlikely to have a significant impact on the Indian market, which is being weighed down by the sustained selling by FIIs, the huge supply of paper from IPOs and the poor earnings growth of the last six quarters, opined Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.
In December so far, FII selling has hit ₹14,051 crore, taking the cumulative outflows to ₹157,726 crore as of December 10. Meanwhile, the rupee depreciated 17 paise to 90.11 against the US dollar in early trade today.
Harshal Dasani, Business Head at INVAsset PMS, said that traders are viewing this cut not as a confidence signal but as a pre-emptive move against emerging macro stress. “The broader market reaction reinforces that message — Midcap and Smallcap indices continue to show weakness, failing to reclaim breakdown levels despite global easing. This is exactly what happens when liquidity is injected into an economy facing underlying slowdown risks: large caps stabilise, but the riskier segments do not revive,” he observed.
Dr Vikayakumar believes that, along with the likely slowdown in IPOs in 2026, when earnings growth picks up as expected, the market will respond positively. He sees this weakness in the market as a buying opportunity in high-quality stocks, particularly in large-caps and selectively in midcaps. “The weakness in the broader market is likely to continue,” he cautioned.
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.
