Kolkata: The US Federal Reserve (Fed) is currently holding its two-day Federal Open Market Committee (FOMC) meeting (March 18-19) to decide on interest rates, a decision that will have global financial implications. However, this time, Indian investors are watching more closely than ever.

The Indian stock market has already seen a massive foreign institutional investor (FII) outflow since October 2024, leading to a 14% decline in the Sensex 30 from its September peak. The situation is further complicated by US President Donald Trump’s tariff policies, which have heightened market uncertainty. The Fed’s rate decision will be crucial in shaping future trends.

What to Expect from the US Fed Meeting?

There is widespread expectation that the Fed will keep rates unchanged at their current 4.25-4.50% range. However, some analysts do not rule out the possibility of a rate cut, given that Trump favors lower interest rates to boost economic growth.

Decision Timing:

• The outcome will be known post-midnight on March 19 (IST).
• Fed Chairman Jerome Powell’s press conference will provide insights into future rate decisions, inflation, and job market trends.

Hawkish or Dovish: What It Means for Markets

Hawkish Stance (Tight Monetary Policy):

If the Fed raises or maintains high-interest rates, it signals a focus on controlling inflation.
Higher interest rates slow down economic growth and reduce liquidity in markets.
Negative for emerging markets like India, as FIIs may continue to pull out funds for safer US investments.

Dovish Stance (Loose Monetary Policy):

If the Fed cuts interest rates, it will make borrowing cheaper and stimulate economic growth.
Lower rates encourage riskier investments, leading to FII inflows into Indian equities.
Positive for Indian stock markets, boosting investor confidence.

Market analysts predict that Powell will likely keep rates steady, given:

• US Unemployment Rate: 4% (January 2025)
• US GDP Growth: 2.8% in 2024
• Inflation Rate: 3.1% (February), while the Fed targets 2% inflation

With inflation still above target, cutting rates now could fuel further inflation, making a rate hold the more likely scenario.

Will FIIs Return to Indian Markets?

If the Fed signals a rate cut, it could trigger fresh buying in Indian equities by FIIs.

Investment strategist Nilanjan Dey (Wishlist Capital) says:

"Indian equity valuations are now more reasonable than they were last year when FIIs began selling. A Fed rate cut could brighten return expectations from Indian markets."

However, if the Fed maintains a hawkish stance, FIIs might continue their sell-off strategy in Indian markets, waiting for a more favorable global environment.

What’s Next for Indian Investors?

With the Fed’s decision looming, investors will closely monitor:
Global market reactions post-announcement
US economic indicators and inflation trends
FIIs' investment behavior in Indian equities

If the Fed maintains its current stance, the focus will shift to India’s domestic economic policies, including RBI’s potential rate cuts and upcoming fiscal measures.

For now, volatility is expected, and market participants should brace for significant swings depending on the Fed's stance.