18 Sep 2025: In a move closely watched by global markets, the U.S. Federal Reserve on Wednesday cut its benchmark interest rate by 25 basis points, bringing the federal funds rate to the 4.00%–4.25% range. This marks the first rate cut by the Fed in 2025. Officials cited cooling in the labour market and moderation in economic activity as key reasons for the decision.
Why the Cut Matters
The interest-rate cut is being viewed as a “risk-management move”, a tool aimed at cushioning potential downside risks to employment and economic growth. While inflation remains elevated, the Fed has signaled that it is closely watching incoming data before making further policy changes.
Moreover, Fed officials hinted at the possibility of two more quarter-point rate cuts in the remainder of 2025, provided that inflation, labour market data, and growth trends justify such moves.
Impact on Indian Markets & IT Stocks
Indian equities responded positively to the Fed’s rate cut. The Sensex and Nifty indices were up, with the Nifty seeing gains especially in export-oriented sectors. The Nifty IT index rallied sharply.
IT firms—especially those deriving significant revenues from the U.S.—were among the biggest beneficiaries. With lower borrowing costs and softer dollar, the spending capability of U.S. companies is expected to improve, possibly boosting demand for outsourced and cloud/IT services.
Specific stock moves:
- LTIMindtree led gains in the sector, jumping nearly 3% in morning trade.
- Infosys, Wipro and Mphasis rose around 2% each.
- TCS saw a more modest gain of about 1%, though still positive.
- Tech Mahindra also gained over 1%, along with others such as HCL Technologies, Coforge, etc.
Broader Implications
- Foreign Investment Inflows
The rate cut makes U.S. yields less attractive in comparison, pointing to increased likelihood of foreign portfolio investors (FPIs) redirecting funds to emerging markets like India. This could bolster not just IT but other export-heavy sectors. - Exchange Rate & Dollar Weakness
A softer dollar often accompanies rate cuts since U.S. yields fall. For Indian exporters, this is generally positive, improving margin dynamics when converting earnings back to rupees. - Domestic Sentiment & Borrowing Costs
Although the Fed’s move is external, its effects can ripple domestically. Cheaper international borrowing and improved global demand could help Indian IT firms invest more confidently. Meanwhile, sentiment in India’s markets is lifted by expectations of better policy support and earnings recovery in the second half of FY26. - Risks Remain
Despite the optimism, there are caution flags. Inflation in the U.S. remains elevated, and the labour market, though weakening, is still more resilient than some signals suggest. If inflation makes a comeback or economic weakness deepens, the Fed may hold off on further cuts or reverse course.
What to Watch Next
- U.S. labour data (unemployment, job growth) over the coming months will be crucial. Weakness there supports rate cuts; strength could dampen future easing.
- Inflation metrics in both the U.S. and India, especially core inflation, which would influence central banking decisions.
- Movements in the U.S. dollar and global yields, which affect export earnings and investor flows.
- Trajectory of foreign portfolio investments into India—how they respond to the changing yield environment and the risk perceptions globally.
- Domestic policies from RBI/Indian regulators—whether they adjust interest rates, taxes, or provide incentives to enhance export competitiveness or manage inflation.
Summary
The Fed’s first rate cut of 2025 (25 bps) boosts Indian IT stocks—LTIMindtree, Infosys, Wipro, TCS—as export demand, foreign inflows, and dollar softness improve sector outlook.