India equity playbook 2024: US pivot has finally happened; will D-St shine even more?
US Fed has finally cut its interest by 50 bps. Our analysis showcases that since the turn of the century the US has witnessed 3 instances of a pivot of 50 bps rate cut, which were driven by the need to reduce a recession. Excluding COVID, US markets corrected as much 24% to 28% one year post the first cut. Indian markets too followed suit, correcting 15% to 30% during these two instances.
However, this time US GDP is still growing at around 2% and fears of recession are lower. Theoretically, falling interest rates in the longer run should revive demand, increase capex and lower cost of capital and increase valuations and earnings of markets, especially if the economy is growing. India in our eyes falls under this basket of “growing economies with stable corporate earnings drivers”. Surge in domestic liquidity led to belief the equities could delink from the world and US markets at least shunting any significant falls.
US finally has pivoted – Could the global markets correct
The Fed has cut its interest by 50 bps to 5% to arrest the rise in unemployment rates and bolster demand. This could lead to other economies following suit albeit not at the same pace. The cuts expected are another 150 bps by end 2025. This could call for a weakening of the US dollar specially against India. Our analysis showcases that since the turn of the century the US has witnessed 3 instances of a PIVOT of 50 bps rate cut, before the current Fed cut of 50 bps on September 18, 2024.
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