Global markets have largely rejoiced at the US Federal Reserve signal of the first rate cut in September.
However, the start of the rate cut cycle cannot be the only reason for the rally, if history is anything to go by. The performance of the Indian and the US markets during the previous rate cut cycle was muted.
The benchmark Nifty gained 4.5 per cent and 1.1 per cent in three months and 1 year, respectively after the first rate cut on July 30, 2019. Meanwhile, the S&P500 of the US rose 1 per cent in three months and 8.1 per cent in a year, according to an analysis by foreign brokerage Nomura on equity market performance during the past six rate cut cycles. The brokerage concluded that economic conditions that necessitate the cuts and starting valuations into rate cut cycles hold the key.
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