Stock market today: Sensex, Nifty set to gain after US Fed policy outcome; here's why

Stock market indices Sensex and Nifty may keep their recent positive momentum intact on Thursday after the US FOMC predictably held rates, but revised lower the 2025 GDP growth to 1.7 per cent from 2.1 per cent and revised higher core PCE inflation to 2.8 per cent from 2.5 per cent, hinting at a stagflation ahead. 

The Fed Chairman Jerome Powell came off a little dovish in the presser, as he did not sound too concerned about inflation expectations and was inclined to view the rise in inflation due to tariffs as transitory -  a view also reflected in Fed's unchanged core PCE projections for 2026 and 2027, said Emkay Global's Madhavi Arora.

"The market is reacting, with futures indicating a 62.1 per cent probability that the Fed will resume rate cuts in the upcoming June meeting, reflecting a slight increase from the previous 57 per cent. This shift signals trader sentiment that the Fed may need to take more accommodative steps to support the economy amid lower growth expectations and rising inflation concerns," said Ashwani Dhanawat, Executive Director & Chief Investment Officer, Shriram General Insurance. 

Prashanth Tapse, Senior VP (Research) at Mehta Equities said despite the uncertainties stemming from the US President Donald Trump's tariffs and fiscal policies, the Fed projected two quarter-point rate cuts in 2025. "Nifty is expected to rise today, with bullish consolidation likely even as new growth and inflation forecasts catch markets by surprise," he said.

Among US indices, Dow Jones climbed 383.32 points, or 0.92 per cent, to 41,964.63. S&P500 index advanced 60.63 points, or 1.08 per cent, to Rs 5,675.29. Nasdaq Composite in fact surged 246.67 points, or 1.41 per cent, to 17,750.79. Markets across Japan and Korea opened higher, but mainland China and Hong Kong equities were trading marginally lower.     

Arsh Mogre of PL Capital  said this Fed uncertainty has mixed implications for emerging markets like India. He said it would offer short-term relief, seen through declining US yields -- two-year Treasury dipping below 4 per cent. This is also aiding near-term rupee strength. Yet, prolonged volatility, coupled with anemic US demand poses structural risks to export-oriented sectors, he said.

Arora of Emkay Global said some of the growth hit persists, as the median US GDP growth for next year was taken down two-tenths to 1.8 per cent. Interestingly, the median longer-run dot — which had generally been drifting higher over the past year — was also kept unchanged at 3 per cent, Arora said.

Tariff and uncertainty were the buzzwords in the presser, with Chair Jerome Powell even subtly downplaying the importance of the dots as guidance ahead, she noted adding that the median dot still looks for two cuts this year, with the out years also unchanged. 

"While the cautiously optimistic Fed has eased some market pressure, we feel EM assets will be in a push and pull phase, where a generally weakening DXY would be countered by higher global uncertainty," Arora said.

Arora of Emkay Global said that changing global narrative on growth and tariff noises may allow EM central banks, including the RBI, to be less defensive on the forex fight, implying some policy flexibility on rate settings in general.

"What was noteworthy is that all FOMC members felt increasing price pressures were a real risk. In a way, the risk of stagflation - slow growth and elevated inflation - is what the Fed acknowledged. Stocks, including domestic equities, have rallied largely, as slow growth would mean more rate cuts, but that expectation is not on solid footing because of the tariff-related uncertainty, which Powell also flagged clearly," said Akshay Chinchalkar, Head of Research, Axis Securities. 

Emkay Global said said the RBI's consistent efforts to ease system liquidity will imply that durable liquidity will soon turn into a surplus, April rate cut possibility is solid, with one further cut possible ahead. However, we are keeping a tab on fluid global dynamics and FX knock-on effect as well - both of which would be important inputs in RBI's reaction function," she said.