Sensex and Nifty Surge as US Fed Rate Cut Boosts Indian Markets

Indian equity markets witnessed a strong rally on Thursday, September 18, 2025, as benchmark indices Sensex and Nifty extended their gains for the third consecutive session following the US Federal Reserve’s decision to cut interest rates by 25 basis points. The move by the world’s most influential central bank has reinvigorated investor sentiment across global markets, with Indian equities emerging as key beneficiaries of the renewed liquidity optimism.

Market Performance: Strong Opening Sets the Tone

The BSE Sensex opened with considerable strength, gaining 415.21 points or 0.5% to reach 83,108.92 in early trading, while the broader Nifty 50 index rose 110.8 points or 0.43% to start at 25,441.05. By the session’s close, the Sensex had gained 320.25 points or 0.39% to finish at 83,013.96, while the Nifty added 93.35 points or 0.37% to close at 25,423.60.

The robust performance represented the continuation of a positive trend, with both indices registering gains over three consecutive trading sessions. During this period, the Sensex accumulated a total gain of 1.50% while the Nifty advanced 1.41%, demonstrating sustained buying interest among investors.

Fed’s Historic Rate Cut Decision

The rally was triggered by the US Federal Reserve’s decision to lower its benchmark interest rate by 25 basis points, bringing the federal funds rate to a range of 4.00%-4.25%. This marked the first rate cut by the Fed in 2025, breaking a prolonged period of monetary tightening that had begun in March 2022.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) cited concerns over slowing job growth and rising unemployment as primary factors behind the decision. The committee noted that “job gains have slowed, and the unemployment rate has edged up but remains low,” while acknowledging that “downside risks to employment have risen”.

The Fed’s statement indicated that recent economic indicators suggest growth has “moderated in the first half of the year,” while inflation “has moved up and remains somewhat elevated”. Despite these mixed signals, the committee determined that supporting employment had become a priority, leading to the rate reduction.

Sectoral Performance and Market Leadership

Indian equity markets showed broad-based participation, with information technology and banking stocks leading the charge. Among Sensex constituents, notable gainers included Eternal, Sun Pharma, Infosys, HDFC Bank, HCL Tech, Hindustan Unilever, Power Grid, ITC, and Adani Ports. HDFC Life Insurance climbed 2.29%, Infosys advanced 1.13%, and HDFC Bank rose 1.05%, providing significant support to the overall indices.

The IT sector, in particular, benefited from expectations of improved global demand and enhanced competitiveness due to a potentially weaker US dollar. Banking stocks gained on prospects of improved liquidity flows and reduced pressure on asset quality. Pharmaceutical and healthcare stocks also witnessed strong buying interest, reflecting investor confidence in defensive sectors.

However, not all sectors participated in the rally. Tata Motors, Trent, Bajaj Finance, and Asian Paints were among the notable decliners, while media and PSU bank shares came under pressure.

Global Market Context and Asian Performance

The positive sentiment extended across Asian markets, with regional indices responding favorably to the Fed’s dovish stance. South Korea’s Kospi and Japan’s Nikkei 225 both closed over 1% higher, reflecting broad-based optimism among Asian investors. However, Chinese markets showed mixed performance, with Shanghai’s SSE Composite and Hong Kong’s Hang Seng ending more than 1% lower, indicating region-specific concerns.

European markets demonstrated significant gains following the Fed announcement, while US markets concluded Wednesday’s session with mixed results despite the rate cut. This divergent performance highlighted varying investor interpretations of the Fed’s decision across different regions.

Foreign Investment Flows and Currency Impact

The rate cut has significant implications for foreign investment flows into Indian markets. Lower US interest rates reduce the relative attractiveness of US bonds and dollar-denominated assets, encouraging investors to seek higher yields in emerging markets like India. Market experts anticipate that the Fed’s dovish stance could help reverse the significant Foreign Institutional Investor (FII) outflows that India has experienced in recent months.

FIIs had sold equities worth ₹1,124.54 crore on Wednesday, continuing their selling trend, but domestic institutional investors provided support by purchasing shares worth ₹2,294 crore. In September, global investors had offloaded shares worth ₹3,092 crore after dumping over ₹80,000 crore in July and August.

Expert Analysis and Future Outlook

Market analysts have expressed cautious optimism about the Fed’s decision and its impact on Indian equities. Ankit Mandholia, Head Equity and Derivatives at Motilal Oswal Financial Services, explained that “Lower US yields reduce the relative appeal of American bonds, encouraging foreign investors to channel more funds into emerging markets like India”.

Vikram Kasat, Head of Advisory at PL Capital, noted that “Nifty has decisively closed above 25,250, confirming a breakout. Momentum remains intact with support levels at 20HMA 25,209 and 40HEMA 25,130, while upside potential continues to build”. He added that sectors such as banking and IT are expected to benefit most from increased global liquidity.

However, some experts counseled measured expectations. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, pointed out that “recent experience suggests that US Fed rate action has only a temporary and limited impact on the Indian stock market”. He emphasized that medium to long-term market trends will be dictated by GDP growth and corporate earnings rather than external monetary policy changes.

Technical Analysis and Market Momentum

From a technical perspective, the Nifty’s close above 25,400 formed a higher top and higher bottom pattern on the daily chart, signaling underlying strength in the market structure. This breakout above key resistance levels has encouraged momentum traders and technical analysts to maintain a positive outlook for the near term.

The market breadth remained positive throughout the session, with 2,097 shares rising and 2,083 shares declining on the BSE, while 171 shares remained unchanged. This balanced participation across market segments suggests healthy underlying demand rather than narrow, sector-specific buying.

Commodity Impact and Broader Economic Implications

The Fed’s rate cut also impacted commodity markets, with Brent crude oil decreasing 0.56% to $67.57 per barrel. Lower interest rates typically weaken the US dollar, making dollar-denominated commodities more attractive to international buyers, though immediate price movements reflected mixed investor sentiment.

Gold prices, which often benefit from lower interest rates, showed conflicting signals as the stronger dollar post-announcement offset some of the traditional safe-haven demand. This dynamic highlighted the complex interplay between monetary policy decisions and commodity price movements.

Future Fed Policy and Market Expectations

The Fed’s accompanying “dot plot” of individual member projections suggested the possibility of two additional rate cuts before the end of 2025. However, the projections revealed considerable disagreement among committee members, with newly installed Governor Stephen Miran being the only dissenter who preferred a larger 50 basis point cut.

Market participants are now closely watching for future Fed communications to gauge the central bank’s commitment to further easing. The committee emphasized that future rate decisions will depend on incoming economic data, particularly employment statistics and inflation trends.

Risk Factors and Cautionary Notes

Despite the immediate positive reaction, several risk factors could influence future market performance. Ongoing geopolitical tensions, particularly trade-related uncertainties stemming from US policies, continue to create volatility in global markets. Additionally, domestic factors such as monsoon performance, corporate earnings growth, and inflation trends will play crucial roles in sustaining the current momentum.

The Fed’s decision comes amid persistent pressure from the Trump administration for more aggressive rate cuts, raising questions about central bank independence and future policy credibility. These political dynamics add another layer of uncertainty to the global economic outlook.

Cautious Optimism Prevails

The strong performance of Indian equity markets following the Fed’s rate cut reflects renewed investor confidence in emerging market assets and India’s growth prospects. While the immediate reaction has been positive, market participants remain aware that sustainable rallies depend on fundamental economic improvements rather than just monetary policy support.

As global liquidity conditions improve and the US dollar potentially weakens, Indian markets are positioned to benefit from increased foreign investment flows. However, the ultimate success of this rally will depend on India’s ability to deliver on its growth promises through strong corporate earnings, continued economic reforms, and effective management of inflation pressures.

The coming weeks will be crucial in determining whether this Fed-induced rally can sustain itself or whether it represents a temporary boost in an otherwise challenging global economic environment.

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