US Fed Rate Cut: A Boost for Foreign Investment in Indian Stocks?

### Quick Summary

– The US Federal Reserve has cut interest rates by 25 basis points and signaled additional cuts in 2025.
– Lower rates typically weaken the US dollar, perhaps attracting foreign capital to emerging markets like India.
– Concerns exist about India’s rich market valuations compared to cheaper options like China, making it less appealing for foreign investors currently.
– Foreign portfolio investors (FPI) sold shares worth ₹2.28 lakh crore this year. However, September saw a slowdown in selling activity compared to July-August.- MSCI India trades at 22x price-to-earnings ratio compared to MSCI Emerging Markets’ 14.3x valuation.
– Domestic investors have invested about ₹5.46 lakh crore so far in 2025,providing significant support to Indian equities.
– Experts suggest domestic institutional participation and improved earnings momentum may trigger a positive shift in FPI sentiment toward Indian stocks.

Agencies

[Read More](https://economictimes.indiatimes.com/markets/stocks/news/will-us-fed-rate-cut-lead-to-revival-of-foreign-investment-in-indian-stocks/articleshow/123987336.cms)

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### Indian Opinion Analysis

The US Federal Reserve’s rate cut could improve the relative appeal of emerging markets like India due to expectations of a weaker dollar driving global capital flows out of the United States.However, India’s high market valuations remain a significant deterrent for foreign portfolio inflows when compared wiht alternatives such as China.

While slowing FPI outflows offer some optimism for stabilization,achieving robust incoming investments will likely depend on improved corporate earnings growth and proactive engagement from domestic institutional investors such as mutual funds and pension funds-a factor identified as capable of influencing foreign counterparts’ behavior.India’s premium over other emerging markets declining closer to long-term averages hints at improving investment conditions over time but does not guarantee an immediate revival amid global uncertainties surrounding tariff issues and macroeconomic trends. Domestic institutions’ continued support is critical for maintaining resilience against fluctuating FPIs until broader sentiment shifts favorably.

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