The US Federal Reserve's decision to keep interest rates unchanged has offered some support to Indian equities, but the relief may prove short-lived if domestic interest rates rise in the coming months.
Sensex jumped 762 points or 1% to the day's high of 74,007.70, while the broader Nifty 50 rose 210 points or 0.9% to an intra-day high of 22,908.75.
Emkay expects the Reserve Bank of India (RBI) to deliver another 75 basis points of cumulative rate hikes in the current cycle, with increases anticipated in December 2026 and February 2027. This raises a key question for investors: can the Nifty sustain its gains amid the prospect of tighter domestic monetary policy, elevated crude oil prices and persistent inflationary pressures?
The Federal Open Market Committee voted 10-2 to maintain the US federal funds target range at 3.75%-4%, following a rate hike at its September meeting. Fed Chair Kevin Warsh said inflation remained too high and indicated that policymakers needed more data before deciding on their next move. US consumer inflation stood at 3.7% in September.
Domestic brokerage Emkay believes the combination of elevated US interest rates, high oil prices and weak natural dollar inflows could push the RBI towards further monetary tightening. These factors could increase pressure on the rupee and raise India's risk premium, limiting the central bank's ability to look through global inflationary pressures.