The US market serves as a barometer for the global economy. Flagship bourses in the US like the Dow Jones Industrial Average, the S&P 500, the NASDAQ Composite, and also theUS bond yields, grab the attention of investors all over the world and impact investor sentiment and market inflows and outflows.

Also Read: US Fed slashes rates by 50 bps — Jerome Powell’s top quotes on economic outlook

Historically, the relationship between the US and Indian stock markets has been strong in the past, with correlation coefficients between 0.6 to 0.7. However, in recent years, this has slightly dipped to between 0.4 and 0.5. Indian markets have been charting a path of their own, primarily driven by India’s GDP growth, self-sustaining corporate profits, stability of policy making and growing domestic participation in the stock markets including a huge retail SIP book.

The wealth management business and wealth managers are facilitators of investment decisions for investors. While they act as conduit for data & information flow, they also help the investor understand the impact of global events on their portfolio, by doing a deep dive and analysing the future local impact, both short term & long term. Also, it is during uncertain times that investors look up to their wealth manager to discuss and realign their investments based on their financial goals and possible market trends.

A 50 bps rate cut by the US Federal Reserve on Wednesday — first rate cut in four years— has provided a possible direction though the future health of the US economy remains uncertain and only time and more data provide clarity on the the pace of future rate cuts, state of US economy, housing inflation and extent of labour market weakness.

While the Fed is stating that the balance of risks are even, and the economy is in good shape, the path ahead may be less even. Adding to this is the uncertainty of US elections, we are looking at a melting pot of a large number of variables.

Economic wisdom tells us that such interest rate cuts, and possible weakening of the US dollar would bring in more foreign inflows, thus providing the emerging markets a further liquidity boost.

Amongst emerging Markets, Indian equity market is one of the best-performing emerging markets (EMs) over the long term. In the last 3 to 5 years as well, while most of the major EMs delivered single digit returns, India has delivered double-digit returns. In the MSCI Emerging Markets Index, Indian equities together carry a weight of 22.27%, edging ahead of Chinese stocks, whose combined weight now has fallen to 21.58%.

We further expect Indian IT sector to benefit from the expected increased demand as US corporations would increase their IT budgets due to reduced borrowing costs.

While the rate cut may boost sentiment, Indian markets will remain sensitive to more global cues in the near term, with volatility in rate-sensitive sectors like banking and finance.

The Indian stock market continues to ride high on optimism largely driven by strong fundamentals as below:

• • Robust earnings growth: Nifty 500 companies have witnessed a CAGR of 22% in FY24, a cross sectors.
  • Resilient balance sheets of Corporate India: Deleveraging has reduced Debt-to-Equity from 0.99 (2017) to 0.59 (2024).
  • Liquidity Boost: COVID-era liquidity measures, lowered interest rates, re-rated company valuations, and boosted India’s GDP growth, fuelled domestic investor confidence and led to increased financialisation of savings, especially in the Tier 2 and Tier 3 cities of India.
  • DII inflows: Over the last 3 years, markets have seen DII inflows to the tune of $80 billion while the FIIs have invested only $5 billion in Indian equity markets.
  • Sentiment: Demat accounts have surged from 4 crore (2020) to 15 crore (2024), driving retail participation in mid and small caps, partially resulting in the higher returns.
  • Private Expenditure: Expected to increase by 54% in a year, reaching ₹ 2.45 lakh crore in 2024-25 as against ₹1.59 lakh crore in 2023-24, according to a study published by RBI. This significant rise is due to rising domestic demand, improved corporate profitability, sustained credit demand, business optimism, and government’s focus on infrastructure development.
  • Government Push: India will continue to benefit from the government’s push for growth in the manufacturing sector through measures such as the Production Linked Incentive (PLI) scheme, increased public spending, and investments in infrastructure However, investors must remain vigilant amidst the array of potential risks. From valuation concerns and global economic headwinds to geopolitical tensions and regulatory interventions, the landscape demands prudent risk management strategies.

Complex times also provide opportunities to wealth management firms to connect and guide investors in such times and help investors by providing customised ways to approach their investments, in terms of asset allocation as well as sub-asset allocation.

But yes, what remains true over the next decade is that — it’s now India’s time — “waqt hamara hai”. 

—The author, Abhijit Bhave, is Managing Director & CEO at  Equirus Wealth, one of India’s leading wealth and portfolio management services firm. The views expressed are personal.