Fed’s Caution Lifts Nifty Past 23K, Watch Out for These Sector Moves

Fed Interest rate decision: For domestic investors, relief is finally in sight with back-to-back positive cues. On Thursday, the US Federal Reserve kept its interest rates steady at 4.25% and 4.5%, largely in-line with analysts' expectations. What caught investors' attention was Fed Chair Jerome Powell's remarks on US economic growth.

“Uncertainty around the economic outlook has increased," the central banks said during the 2-day meet.

Domestic benchmark indices— Sensex and Nifty— surged by over 0.6%. NSE Nifty surpassed the psychological 23,000 level mark, up by over 144 points. BSE Sensex, meanwhile, was trading at 75,922 level, up by 473 points, during the morning trading session.

"The Fed holding the rates and projecting lower growth at 1.7% and higher inflation at 2.8% for 2025 are on expected lines. More significant is the Fed chief’s comment that policy can move either way depending on the evolving outlook. The evolving outlook is highly uncertain thanks to Trump’s tariff tantrums," said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

Interestingly, the US markets also edged up higher despite the Fed's cautionary tone on the growth outlook. The S&P 500 index surged by over 1.08% or 60 points and concluded the trading session at 5,675. The tech-heavy index, Nasdaq, surged by over 1.4% or 246 points and ended the trading session at 17,750 level mark.

Too much euphoria?

"S&P 500 rallied more than a percent after the US Fed concluded its meeting with no change in interest rates. It seems that the market participants are too myopic and focussed only on the two rate cut promises by the Fed in 2025. All the other projections published by Fed signals deterioration in the economic conditions by the end of 2025," pointed out Apurva Sheth, head of market perspectives and research, SAMCO Securities.

The GDP growth estimates for the year has been lowered from 2.1% to 1.7%, while core PCE inflation is expected to rise from 2.5% to 2.8%. Meanwhile, unemployment is projected to inch up from 4.3% to 4.4%. Despite subdued macros and expectations of prospective stagflation, the market is reacting positively.

"Probably it is taking Fed Chiefs claims of inflation being 'transitory' at face value. Maybe the public memory is short.  But we shouldn't forget what happened in 2021 after the Fed kept on saying that inflation was transitory...we got the largest inflation spike in 40 years," said Sheth.

While this is highly unlikely to happen now, Sheth added that if things go south then there will be limited options available at the disposal of investors except hard commodities.

Which Sectors to watch

"In the Indian market two trends are significant. One, domestic consumption themes are finding favour. Four stocks that hit 52-week highs during the last 2 days - Kotak Bank, Bajaj Finance, Interglobe Aviation and Muthoot Finance- are domestic consumption themes. External-oriented IT is weak. Two, beaten down themes like defence/shipping are finding favour. Consumer-facing digital stocks also are on strong wicket. This trend may continue," said Vijayakumar.

However, analysts note that the market remains in wait-and-watch mode until April 2, when reciprocal tariffs will be announced.