IT, Banking, Large-Cap Stocks: Strategies to Strengthen Your Portfolio After the Fed Cuts Interest Rates

The US Federal Reserve’s unexpected 50 basis point (bp) interest rate cut has left investors wondering what impact it will have on the stock market and their investment portfolios.

While interest rate cuts often lead to positive market sentiment, the larger-than-expected cut has raised concerns about the broader economic outlook, leaving experts divided on its long-term effects.

The Federal Reserve’s decision, the first in four years, was aimed at supporting the labor market. But it stirred mixed feelings among market participants.

Apurva Sheth, Head of Market Outlook at SAMCO Securities, said, “The US Fed announced a 50 basis point (bps) rate cut and surprised the market. A vast majority of market participants were expecting only 25 bps and were caught off guard. Although, the reaction to this development is a bit muted as markets ended the day with nominal gains after a volatile session.”

Sheth advises investors to focus on defensive sectors in the meantime. “We recommend investors to focus on defensive sectors like FMCG and Pharma. Precious metals like gold and silver should also be added to the portfolio, at least until there is clarity on the market direction.”

Impact on Dalal Street

Santosh Meena, head of research at Swastika Investmart Ltd, highlighted the potential volatility in the stock market.

“While logically this move is positive for the stock market, the market seems to have already factored in the rate cut, so we may not see a sustained uptrend. However, there is a potential risk of profit taking, especially in the mid- and small-cap sectors,” he said.

Meanwhile, Prashanth Tapse, Senior Vice President-Research at Mehta Equities Ltd, said the rate cut could lead to volatility in Nifty, with “preferred buy being Nifty at 25,300-25,350 and Bank Nifty at 52,300-52,600 and sell IRCTC at 911-915 given bearish momentum indicators.”

IT, real estate, FMCG, banking stocks in the spotlight

Vipul Bhowar, senior director of listed investments at Waterfield Advisors, highlighted the opportunities and threats that the interest rate cut brings.

“The Fed’s rate cut is expected to boost Indian equities and attract foreign investment in the near term. However, it also raises concerns about fundamental weaknesses in the US economy and could lead to increased market volatility,” Bhowar said.

While sectors like banking, IT and real estate could benefit from lower borrowing costs, Unmesh Kulkarni, managing director and senior advisor at Julius Baer India, warns that Indian stocks could still face volatility.

“In the near term, the sentiment in domestic equity markets in India will depend on the prevailing sentiment in global markets (particularly expectations of a soft/hard landing in the US economy),” he added.

Dr Ravi Singh, Vice President, Retail Research, Religare Broking, noted that the 50 basis point interest rate cut by the Federal Reserve is a positive factor for Indian equities as it increases global liquidity, thereby allowing more funds to flow from abroad to investor destinations like India.

“This boosts investor confidence and helps the stock market momentum. Moreover, it also puts pressure on the Reserve Bank of India (RBI) to think of a similar rate cut, especially when the domestic economy is still recovering,” Singh said.

“Our view across the infrastructure, manufacturing and FMCG sectors remains positive in light of improving economic conditions.”

What should investors do?

Given the uncertainty, many experts recommend a cautious approach.

Kulkarni added, “A prudent strategy would be short-term caution + staggered investments + preference for large caps + longer investment horizon.”

As the market reacts to the Federal Reserve’s unexpected move, investors should brace for near-term volatility while looking for opportunities to adjust their portfolios toward sectors that provide both stability and growth in this changing environment.

Meanwhile, commenting on the domestic equity market, Yogesh Kalwani, Chief Investment Officer, InCred Wealth, said, “Given that valuations are trading higher than long-term averages, we may see consolidation in the broader markets and investor preference towards large-cap and value stocks.”

(Disclaimer: The views, opinions, recommendations and suggestions expressed by the experts/brokers in this article are their own and do not reflect the views of India Today Group. It is advisable to consult a qualified broker or financial advisor before taking any actual investment or trading decisions.)