Fed Holds Rates, Signals Inflation Concerns As Sensex Rallies 650 Points

Indian benchmark indices Sensex and Nifty extended their recovery on Thursday after the US Federal Reserve kept interest rates unchanged, offering some support to global market sentiment. However, persistent concerns over elevated crude oil prices, inflation and foreign investor outflows continued to weigh on the domestic market outlook.

At 12 pm, the Sensex was up 608.18 points, or 0.83%, at 73,854.21, while the Nifty gained 166.15 points, or 0.73%, to trade at 22,865.50. The Sensex had risen around 650 points from the day's low, while the Nifty moved above the psychologically important 22,850 mark.

Market breadth was positive, with 2,032 shares advancing, 1,467 declining and 185 remaining unchanged.

Fed Holds Rates Steady, December Hike In Focus

The US Federal Reserve kept interest rates unchanged at the conclusion of its two-day policy meeting on Wednesday, as expected. However, two Fed officials favoured a rate hike, while analysts said another increase in December remained a possibility as inflation continued to run above the central bank's comfort level.

Fed Chair Kevin Warsh rejected suggestions that the November 3 US midterm elections influenced the decision, saying politics and elections were not discussed during the policy meeting and played no role in the committee's decision.

Warsh described economic activity as “expanding at a strong pace”, citing resilient domestic spending, robust productivity growth and sustained capital investment despite geopolitical uncertainty.

However, he warned that “inflation is too high” and stressed the need to prevent price increases in individual categories from spreading across the broader economy. He also said the Fed had demonstrated its willingness to act through previous monetary tightening.

Wall Street indices gave up some of their earlier gains as investors assessed the policy decision and Warsh's remarks. The Dow Jones Industrial Average rose 0.24%, or 126.79 points, while the S&P 500 narrowed its advance to 0.19%. The Nasdaq Composite traded marginally higher, gaining 0.02%.

Crude Oil, Foreign Outflows Remain Key Risks

“The Fed holding rates as expected is mildly positive for equity markets, globally. However, from the Indian perspective, the headwinds continue to be strong,” said V K Vijayakumar, Chief Investment Strategist, Geojit Investments.

He pointed to the US 10-year Treasury yield hovering around 5% and the absence of meaningful relief in crude oil prices as key concerns for Indian equities.

Vijayakumar also said persistent demand for artificial intelligence-related stocks in South Korea and Taiwan could continue to divert foreign capital away from India. Reports that the chip shortage could persist until 2030 have renewed investor interest in semiconductor stocks and the AI trade, he added.

He said foreign capital outflows of around $31 billion so far in 2026 were increasing pressure on India's macroeconomic position.

Elevated crude prices could widen India's trade and current account deficits, weaken the rupee and increase imported inflation, Vijayakumar said. He also flagged the risk of further inflationary pressure amid a deficient monsoon.

Global Markets Mixed As Investors Assess Earnings

Asian markets traded mixed on Thursday, with technology stocks under pressure following weaker-than-expected earnings from Alphabet, Google's parent company.

Japan's Nikkei 225 edged up 0.2% to 64,073.17, while South Korea's Kospi declined 2.2% to 5,880.25. SoftBank Group shares fell 0.5%.

Ankita Pathak, Head – Global Investments, Ionic Asset, said the Fed's decision reflected a calibrated, data-dependent approach following the September 2026 rate hike.

“Overall economic growth and labour markets remain sufficiently strong, giving the US Fed time to focus on price stability for now. December 2026 hike seems likely, aligning with the dot plot published in the last policy,” Pathak said.

She added that US Treasury yields had softened from elevated levels amid renewed safe-haven demand, with investors now turning their attention to upcoming European Central Bank and Bank of Japan policy decisions.

Pathak also said India's tighter monetary policy stance could persist as policymakers seek to contain inflationary pressures and rupee depreciation.

For domestic equities, the Fed's pause provided some near-term support, but the direction of crude prices, foreign investment flows and expectations of further monetary tightening remain critical factors for investors.