Indian Markets Cautious Amid US Tariff Worries, Fed Rate Cut

The Indian stock market extended its rally on Thursday, closing higher after the US Federal Reserve delivered a widely anticipated 25 basis point interest rate cut and signaled two more reductions this year. The benchmark Sensex surged by 320.25 points (0.39%) to close at 83,013.96, while the Nifty 50 moved up by 93.35 points (0.37%) to settle at 25,423.60. This positive momentum was largely driven by the Fed’s dovish stance, which boosted risk appetite across global markets.

However, the outlook for Friday’s trading session appears more cautious. The Gift Nifty was trading near 25,472, approximately 39 points lower than the previous Nifty futures close, hinting at a potential negative start for Indian markets. This divergence comes despite strong performances in other global markets, particularly in the United States where all three major Wall Street indices closed at record highs on Thursday.

The US stock market demonstrated remarkable strength following the Federal Reserve’s decision, with all three major indices reaching record highs. The Dow Jones Industrial Average gained 124.10 points (0.27%) to close at 46,142.42, while the S&P 500 advanced by 31.61 points (0.48%) to end at 6,631.96. The technology-heavy Nasdaq Composite showed the strongest performance, rising by 209.40 points (0.94%) to finish at 22,470.73.

The Federal Reserve’s 25 basis point rate cut, coupled with signals of two additional cuts expected this year, provided substantial support to equity markets worldwide. This monetary policy easing typically benefits emerging markets like India by making dollar-denominated debt cheaper and improving foreign investor sentiment. However, the positive global momentum is being tempered by specific concerns regarding US-India trade relations.

Several critical developments are influencing market sentiment heading into Friday’s trading session. India’s Chief Economic Adviser V. Anantha Nageswaran provided optimistic commentary on the ongoing tariff dispute with the United States, stating that he expects the issue to be resolved within two months. He indicated that Washington would likely roll back the additional 25% tariff imposed on New Delhi for purchasing Russian oil, which could significantly ease trade tensions between the two nations.

In a major regulatory development, SEBI cleared billionaire Gautam Adani and his group of stock manipulation charges raised by US short-seller Hindenburg Research. The market regulator ruled that fund transfers between group companies did not violate regulations, providing much-needed clarity and potentially removing an overhang that has affected the group’s stocks and broader market sentiment.

Additional global factors include positive US employment data, with initial unemployment claims dropping by 33,000 to a seasonally adjusted 231,000 for the week ending September 13. Meanwhile, the Bank of England maintained interest rates steady at 4% and cast doubt on further cuts this year, while also announcing a slowdown in its quantitative tightening programme by reducing gilt sales from £100 billion to £70 billion annually.