A dovish tone from the US Federal Reserve Chair Jerome Powell’s could signal further easing, potentially boosting investor confidence in emerging markets like India.
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REUTERS/ELIZABETH FRANTZ
Market participants are closely watching the outcome of the US Fed’s policy meeting today, September 17, 2025. The domestic market has been buoyed by optimism over India-US bilateral trade talks, amid other global and domestic cues.
The consensus among analysts leans towards a 25 basis point (bps) reduction, though some anticipate a more aggressive 50 bps cut. The expected rate cut is largely priced in, with investors focusing on the Fed’s forward guidance. A dovish tone from the US Federal Reserve Chair Jerome Powell’s could signal further easing, potentially boosting investor confidence in emerging markets like India.
In addition to the rate cut, investors will pay attention to the tone towards US economic growth and inflation.
Inflation remains the key swing factor, according to Asutosh Mishra, Head of Research, Ashika Institutional Equities, with tariffs posing the risk of a near-term flare-up. “The labour market looks steady but is showing early cracks, low unemployment paired with fewer job openings points to rising recession risks. With the neutral rate estimated near 3 per cent versus today’s 4.4 per cent, the Fed has meaningful room to ease if conditions deteriorate,” Mishra added.
Impact on Indian stock market
The Indian equity markets have shown resilience in anticipation of the US Fed’s decision. The Nifty 50 and BSE Sensex have experienced gains, driven by optimism over US trade talks and expectations of a rate cut.
Analysts suggest that a 25 bps cut may offer a modest boost to Indian equities by enhancing the yield differential between US and Indian assets. A 50 bps cut could further widen this gap, making Indian markets more attractive to foreign investors.
A 25-50 bps rate cut by the Fed is anticipated, driven by a softening US jobs market and rising unemployment. “This would likely benefit the Indian market, as it could help reverse the ongoing outflow of FIIs, who have been actively selling Indian equities since July 2025,” Vinit Bolinjkar – Head of Research – Ventura, said.
According to Dr Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital, a 25 bps rate cut is already discounted in the markets, whereas a 50 bps cut could still have some effect. A dovish tone indicating future significant rate cuts within next 2-3 meetings is what the market would react to strongly positively, Gupta said.
On the sectoral front, Vaibhav Vidwani, Research Analyst at Bonanza, said that the export-driven sectors, particularly IT majors, are likely to benefit significantly, as easier US monetary policy will support their capex in North America, which will strengthen their profitability.
FII inflows
Analysts believe that a substantial rate cut by the US Fed could reverse the trend, leading to renewed FII interest in Indian markets. Favourable narrative in the meeting would begin strong and sustained FII flows into the Indian markets.
According to Om Ghawalkar, Market Analyst, Share.Market, the policy adjustment signals a softer US dollar, making Indian assets more attractive to global investors on a relative yield basis. The sustained FII inflows would strengthen the rupee and boost liquidity-sensitive sectors such as banking and real estate.
The degree of inflows depends on the rate cut size and the Fed’s guidance on future monetary policy. More aggressive cuts or a dovish tone enhance inflows, whereas cautious or hawkish signals may limit them, the Bonanza analyst added.
Vinit Bolinjkar of Ventura also emphasised that the Indian stock valuations appear more reasonable, after a recent correction, due to recent GST reforms, benign inflation and a healthy monsoon season. The Fed’s policy easing could act as an additional catalyst for renewed FII inflows into the domestic market.
Noting that the India-US trade deal appears to be advancing positively, Gupta stressed that these factors combined would have a large impact on FII flows in the near term.
Published on September 17, 2025