Healthcare and manufacturing are expected to expand with the Fed’s upcoming rate cut

As the expected US Federal Reserve rate cut on September 18 approaches, investors are cautiously optimistic about its impact on various sectors. According to a report by Motilal Oswal, healthcare and manufacturing sectors are expected to benefit the most from the Fed’s decision to cut interest rates, indicating solid growth prospects in the near future.

The healthcare sector is expected to be the fastest growing vertical in the next 12 to 18 months. Although it has not been affected much by the interest rate cuts, healthcare is expected to grow due to minimal insourcing threats. The report highlights that the sector’s resilience, coupled with demand for innovation in biotechnology, clinical trials and digital health solutions, positions it as a key beneficiary of the coming rate cuts.

“Healthcare will be the fastest-growing vertical over the next 12-18 months. The sector is largely unaffected by the tailwinds of lower interest rates,” the report said. Additionally, the manufacturing sector has high growth potential, particularly due to technological advances during the rate-cutting cycle. Lower interest rates are expected to drive technology investment, accelerating the industry’s recovery.

The manufacturing sector continues to face challenges, such as limited penetration of IT services in Europe. However, opportunities in technologies such as generative artificial intelligence (GenAI), digital twins, IoT and connected factories are notable. “Manufacturing also shows strong signs of recovery; the cycle of lower interest rates will boost technology investment, and the threat of insourcing in this area remains quite low,” the report notes.

The banking, financial services and insurance (BFS) sector faces significant threats from insourcing despite the positive impact of interest rate cuts. While there is some pre-GenAI spending in BFS, the implementation of GenAI solutions may be slower due to the complexity of enterprise-wide transformation. The report states that “BFS enjoys the positive impact of interest rate cuts but faces significant challenges due to the significant insourcing threat, limiting its recovery potential.”

The retail sector is expected to benefit from interest rate cuts as increased consumption in consumer markets, particularly in the US, is likely to boost growth. The report mentioned that the sector may shift its focus from cost-cutting strategies to revenue-generating initiatives.

In addition, the high-tech sector ranks fifth in terms of benefiting from interest rate cuts. While the cuts may moderately benefit the sector, the threat of insourcing remains significant. Many software companies are expected to maintain tight control over their intellectual property, limiting the options of suppliers. Ultimately, the report identifies healthcare and manufacturing as the main sectors poised to benefit from the anticipated US Federal Reserve rate cut, while also highlighting opportunities and challenges in the BFS, retail and high-tech sectors.

(Based on information from the agency.)