“With the reduction in the interest rates, the technology, financial, housing stocks and consumer discretionary stocks are likely to do well. So, thematic mutual funds focusing on these categories are expected to do well. However, investors should not go overboard in these categories. They should continue to have a larger allocation in flexi-cap or in multi-cap type of funds and let the fund manager do the stock picking,” said Rajesh Minocha, a Certified Financial Planner (CFP) and founder of Financial Radiance.
The expert believes that asset allocation at this point is very important when the markets are jubilant and pessimistic.
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“Asset allocation is very important both when the markets are jubilant and pessimistic. High-risk funds like thematic funds should not be more than 8% to 10% of the overall portfolio,” he added.The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) has also kept the policy rate at 6.50% since April 2023. The central bank has continued to maintain the policy stance of ‘withdrawal of accommodation’.
With inflation being within the target range of RBI, is the central bank also expected to follow suit?
“The RBI is likely to also reduce the interest rates as inflation has been under check for some time, but I feel it will be done cautiously. As both the Fed and RBI have already announced, the interest rates will be reduced in a phased manner gradually which is overall a very good sign for the Indian markets,” commented Minocha.The rate cut by the US Fed will impact the borrowing rates for consumers and businesses, leading to lower costs for mortgages, credit cards, and other loans.
This move came after the recent indicators suggested that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated.
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The Fed said that, “the Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance.”
With the Fed rate cut impacting the global equity markets as well as the bond markets, what impact will it have on the Indian equity market?
“The Fed interest rate cut of 25 basis points was priced in the markets, as interest rates were expected to come down to a controlled level of inflation and unemployment rate in the U.S. The recent resilience of the markets despite the geo-political situation was a reflection of that exuberance. However, 50 basis points have been more than anticipated and this is positive for the equity markets, though they may still want to do a wait-and-watch on some further good news both from the Fed and the RBI,” said Minocha.
The US Federal Reserve has reduced its key lending rate by 50 basis points, bringing the rate down to between 4.75% and 5.00%. This marked the first rate cut since the Covid-19 pandemic.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
