Mumbai, Sep 18, 2024
The Indian benchmark indices have been resilient over the last two decades irrespective of US Fed Reserve stance on rate cuts, a report showed on Wednesday.
Set to announce a fresh rate cut during the Federal Open Market Committee (FOMC) meeting, US Fed has had six alternating easing and tightening cycles over the last 34 years.
For Indian markets, the most productive cycle was the US Fed’s easing cycle from July 1990 to February 1994 where Nifty witnessed a gain of 310 per cent, followed by the tightening cycle in June 2004 to September 2007 where it witnessed a gain of 202 per cent, according to a report by Capitalmind Financial Services.
The only stretches of negative Nifty returns came during tightening cycles in February 1994 to July 1995 at -23 per cent and March 1997 to September 1998 at -14 per cent.
The median Nifty return on the day after the announcement (since the Fed announcement happens after India close) is -0.2 per cent. Nifty has outpaced or, at worst, matched the S&P500 in local currency terms over the last two decades.
According to Anoop Vijaykumar, Investments and Head of Research at Capitalmind, of the 78 US Fed announcements in the last 34 years, Nifty has witnessed a positive change on 50 accounts on the following trading day of the announcement.
The year 1995 was the only calendar year to witness both rate increases and decreases by the US Fed.
“Since the global financial crisis (GFC) in 2008, rates have been perennially low until 2016, when the Fed started raising rates after years of Quantitative Easing. However, COVID-19 called for drastic measures and rates were again reduced before the ensuing unprecedented inflation caused the Fed to raise rates quickly to levels not seen in over two decades,” Vijaykumar explained.
In the last three decades, the most frequent Fed action has been an increase of 25 bps, which has been done 39 times.
While the Fed announced a 50bps rate cut 10 times in the last three decades, which has resulted in a median return of +1.6 per cent for the Nifty. A 25bps cut has been followed by a more modest -0.5 per cent median Nifty return.
While easing US interest rates are directionally positive for equities in general, “we should keep in mind interest rates are just one variable in a complex adaptive system that determines the direction of Indian equity markets”, said Vijaykumar.(Agency)
