The US Federal Reserve cut its benchmark interest rate by 25 basis points on Wednesday, lowering the target range to 3.50%–3.75%. This is the third consecutive rate reduction in 2025. While the decision was widely expected, the Fed’s cautious commentary suggests the aggressive easing cycle is losing momentum, leaving future cuts dependent on incoming economic data.

Indian equity benchmarks, the NIFTY 50 and Sensex, shook off a sluggish opening to trade more than 125 points and 380 points higher respectively, as of 12:42 pm. The rally highlights a significant structural shift in the Indian market: the dominance of domestic liquidity.

Despite Foreign Institutional Investors (FIIs) pulling out nearly ₹16,400 crore in December, the market is moving higher. Domestic Institutional Investors (DIIs) are aggressively absorbing this supply. The “Buy” signal is driven by the expectation that the Fed’s move gives the Reserve Bank of India (RBI) the necessary clearance to cut its own rates in early 2026 without destabilising the Rupee.

Sectoral Deep Dive

The primary beneficiaries of the Fed’s decision are interest-rate-sensitive sectors—Banking, Auto, and Real Estate.

Nifty Bank and Nifty Realty were the top gainers, surging over 1%. Indian banks were rallying on the expectation of a credit growth cycle. As the interest rate gap between the US and India widens, the RBI has more room to lower the Repo rate. Cheaper loans typically spur corporate borrowing and consumer spending, directly boosting bank loan books.

The Real Estate & Auto sectors are heavily dependent on equated monthly installments (EMIs). A signal that global rates are falling leads to anticipation of lower home and car loan rates in India next year, potentially reviving demand in affordable housing and entry-level cars, segments that have been sluggish.

Nifty Pharma was also up over 1%. Indian pharmaceutical companies are heavily export-oriented, with the United States serving as their largest market for generic formulations. The sector is traditionally viewed as a “defensive” bet due to the inelastic nature of healthcare demand. In scenarios where the US economy faces a downturn—a risk highlighted by the Federal Reserve’s split vote and “slowdown” concerns—consumer discretionary spending on automobiles or technology typically contracts. However, expenditure on essential medicines remains stable.

The most direct impact was visible in the commodities market. Gold and silver prices on the MCX surged to all-time highs immediately after the announcement. As US rates fall, non-yielding assets like gold become more attractive than US Treasury bonds.

Simultaneously, the decision stabilises the Indian Rupee. With the dollar index softening, the pressure on the Indian Rupee eases. This is a critical macroeconomic relief: a stable currency keeps the cost of imported crude oil and raw materials in check, helping the RBI manage domestic inflation and paving the way for the rate cuts the market is now pricing in.