Fed rate cut to spur capital flows to India says Nachiketa Sawrikar Boston based Fund manager of the 100mn USD Artha Global Multiplier fund
By: Nachiketa Sawrikar, Fund Manager, Artha Bharat Global Multiplier Fund
As expected, the U.S. Federal Reserve Bank cut rates by 25 bps from 4.125% to 3.875%. More importantly, the Fed signaled an additional rate cut in December, which would bring the Federal Funds Rate down to 3.625% by year-end. We will be very close to the policy neutral rate of 3.25%. That means an additional 1-2 rate cuts in 2026.
The U.S. economy at this time needs these rate cuts as the employment situation is weakening and consumer spending is weakening due to the tariffs. The only bright sector in U.S. is capital expenditure on AI related data centers. The large technology companies making these investments are trying to cut spending on staffing and therefore the outlook for Indian IT sector remains weak.
Historically, when the Fed lowers rates, capital tends to shift out of safe assets such as U.S. Treasuries and bank deposits into riskier assets, including equities, private equity, venture capital, and emerging markets. Indian stock market has already gone up in anticipation of stronger capital inflows. Indian economy is already doing well and there is a general expectation that a new India-U.S. trade deal is imminent with an expected tariff rate of 16-18%. Overall, India stands to benefit from easing of U.S. interest rates and strong domestic fundamentals.
