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Will the Indian stock market experience more selling pressure due to the delay in US Fed rate cuts? Insights from experts

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Will Indian stock market see further sell-off amid delay in US Fed rate cuts? Here's what experts say

In a panel discussion alongside Bank of Canada Governor Tiff Macklem at the Wilson Center in Washington, US Fed Chair Jerome Powell hinted at delayed interest rate cuts amidst high inflation. His comments marked a shift in stance following a third consecutive month where a key inflation measure surpassed analyst predictions. Powell expressed concern over the lack of progress in inflation levels, stating that if price pressures persist, the Fed could maintain rates at their current levels for an extended period.

During March, US retail inflation rose to 3.5% on an annual basis, exceeding expectations of 3.4%. Additionally, US retail sales surged by 0.7% month-over-month in March, surpassing forecasts of 0.3%. Despite borrowing costs being at a 23-year high, consumers continued to spend at a faster pace than anticipated. Since March 2022, the US central bank has raised its policy rate by 525 basis points to the current range of 5.25% to 5.50%.

Powell’s remarks have triggered additional selling pressure in equities, particularly in emerging markets like India. The delay in rate cuts has unsettled investors, leading to a sharp sell-off in Indian equities. The Indian rupee also hit a fresh low of 83.61 against the US dollar, driven by the strengthening of the US dollar index due to the rise in US Treasury yields.

Amid the delayed rate cuts and escalating tensions in the Middle East, Indian benchmark indices Nifty 50 and Sensex experienced declines, with IT stocks bearing the brunt of the market downturn. The Nifty IT index recorded a nearly 5% decline over the past three sessions, signaling concerns about prolonged rate hikes impacting client spending in the sector. As foreign institutional investors turned net sellers, offloading shares worth crores, expectations of capital outflows from equities in favor of higher-yielding bonds have emerged.

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