Brokerages are expecting a 25 basis points rate cut by the Reserve Bank next week following US Federal Reserve's decision to keep interest rates unchanged at near-zero level for the eighth consecutive year.
The US Federal Reserve left the interest rates at 0.00 to 0.25 per cent citing threats from a weak global economy, persistently low inflation and unstable financial markets.
Noting that global markets cheered the postponement of Fed lift-off and this could improve market sentiments temporarily, Kotak Institutional Equities said, "This short window of opportunity strengthens our call for a 25 bps rate cut by the RBI in the upcoming policy, amid comfortable domestic inflation dynamics."
It further said with temporary global relief rally expected post more dovish-than-expected Fed policy, the focus of the RBI will revert to domestic factors at this point.
India Nivesh Securities said the Fed stance has opened up space for the RBI to cut rates by 25 bps on or before September 29, as the big risk of rundown on the rupee is abated while inflation is very much in favour of a rate cut.
As per Kotak, the Fed chose to delay the rate lift-off owing to global headwinds from China and emerging markets, despite noting its domestic economic improvements.
This is probably the first time that Fed has given a consideration to what is happening in other global markets especially China and emerging markets, experts said.
"The Fed decision not to hike the rate puts to rest the confusion that has bogged emerging markets, including India. The nervousness that has prevailed in the recent past should give way to stability and outflows from emerging markets should be stemmed," Motilal Oswal said.
Optimistic about the capital markets, Oswal said the Fed postponement gives a great opportunity to buy many stocks available at lower prices.
"Although there could be a momentary pause in the cautiousness seen in markets in the recent times, however, uncertainty will continue till the next Federal Reserve meet which will keep upside capped in our opinion.
For the domestic markets the next event that investors would be eyeing will be the RBI meet, Yes Securities said, adding "a rate cut would help in reviving the positive sentiment".
The Sensex rallied 255 points to close at nearly three-week high of 26,218.91 while the Nifty hit the 8,000-level on rate cut hopes after the Fed adopted a status quo.
