Ervin Tu, Prosus Group President & Chief Investment Officer: “With cheaper access to capital, start-ups will be encouraged to invest in themselves for long-term growth and capital providers will be more prepared to take risk.”
Ervin Tu, Prosus Group President & Chief Investment Officer
Nilesh Shah, Managing Director, Kotak Mahindra AMC: Rate Cut Will Facilitate Flows To Emerging Market Assets
Deepak Shenoy, Founder & CEO, Capitalmind
Avnish Jain, Head Fixed Income, Canara Robeco Mutual Fund
Sujit Kumar, Chief Economist, National Bank for Financing Infrastructure and Development (NaBFID)
FinTech BizNews Service
Mumbai, September 18, 2024: The leaders from different BFSI segments and industries have shared their important insights after the US Federal Reserve announced the decision to cut interest rates by half a percentage point on Wednesday night.
Federal Reserve issued Federal Open Market Committee (FOMC) statement yesterday: The Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities.
Nilesh Shah, Managing Director, Kotak Mahindra AMC:
“US Fed opened the rate cut cycle with a bang with 50 bps cut in line with changed market expectations. From Inflation is transitory to higher rates for longer, fed has come a long way to meet market expectations. This rate cut will facilitate flows to the emerging market assets with weaker dollar and lower rates.”
Deepak Shenoy, Founder & CEO, Capitalmind:
“The Fed’s 50 bps rate cut comes as a positive surprise, signalling confidence in its inflation control measures. Markets reacted predictably—yields and stocks edged up, and gold rose. A weaker dollar will help US exports and improve the global economic outlook. The Fed also projects two more 25 bps rate cuts in 2024 and additional cuts through 2025 and 2026, which is positive for the global outlook. In India, with CPI inflation below the RBI’s target, similar rate cuts are possible. However, the key challenge remains liquidity in our system, as banks have sufficient deposits but are cautious in lending.”
Vishal Goenka, Co-Founder of IndiaBonds.com:
“The US Fed did a historic 50bps rate cut overnight. This was well priced in and US equities and bonds both were lower at the close of the day after initial rise. Fed Chairman Powell delivered a ‘hawkish’ cut as per market and mentioned that future course of action will remain data dependant. Interestingly there was a first time dissent vote since 2005 within the committee. The dot plots for future guidance remain less dovish than what the interest rate futures market are implying.
There is diverse course for global central banks in this cycle with Brazil hiking rates and Bank of Japan following similar rate hike commentary. India has remain well insulated from rest of the world rate movements for now and the tremendous rally in risk assets plus projected economic growth keep an inflationary underlying force in the economy. RBI MPC meets next month and a rate cut may remain elusive for now, and perhaps not required yet, in India.”
Siddharth Chaudhary, Senior Fund Manager – Fixed Income, Bajaj Finserv AMC:
“The FOMC has started easing by cutting rates 50 basis points in line with market expectation. So, it is clear now that the worse than expected July employment data was the turning point. The Dot Plot is indicating an additional 50 bps of by year end. The focus is clearly back to maximum employment mandate of Federal reserve.
This looks like an apt decision from risk-management perspective, the economic cost of this pre-emptive 50 bps cut is lower than the cost of waiting and then being forced into a bigger cut later if incoming data suggest further deterioration in the labor market. Also note it is usually too late to cut rates by the time the evidence of labor-market deterioration is clear.
Globally the other central bank which matters now is Bank of Japan. It has got competing considerations such as hot wages and inflation data pointing to the need to adjust policy rates higher versus the risk of market bumps that would call for more patience.”
Sujit Kumar, Chief Economist, National Bank for Financing Infrastructure and Development (NaBFID): “With 50 basis points cut in policy rate along with revised projections of expected rates, the US Federal Reserve has signalled dawn of monetary accommodation era. The inflation is on course to target level while growth and employment takes priority in the Fed's policy matrix. Compared to June, 2024, the median expectations of the Board members are revised slightly upwards on unemployment while inflation projections are revised down.
The Chairman, Powell affirmed that demand conditions in world's largest economy is in good shape, thus downplaying any hard landing concerns. With Dollar likely to be weaker, emerging market central banks can very well focus on addressing domestic concerns, going forward.”
Yogesh Kalwani, Head, Investments, InCred Wealt: “Policy normalization by the Fed has finally begun. The Fed decided to cut rates by 50bps and there are expectations of another 50 bps in 2024 although it is going to be data dependent. On the US macro data projections, Fed lowered inflation projections while growth projections were largely left unchanged and unemployment rates were projected to be marginally higher for next year. We believe Equities (risky assets) will do well on back of US monetary policy normalisation albeit with volatility given there is concern about risk of a hard landing (US recession). As for Indian markets, we believe the Fed pivot could nudge the RBI to change its stance and initiate a repo rate cut during the Dec’24 policy. We believe that much like the rate hike cycle, RBI would resort to a shallow rate cut cycle as compared to the US Fed. On Indian Equity markets, given valuation is above long period averages we may see consolidation in broader markets and investor preference towards large cap and value stocks.”
Avnish Jain, Head Fixed Income, Canara Robeco Mutual Fund:
“The US FOMC (Federal Open Market Committee) cut rates aggressively by 50bps to start the easing cycle. The FOMC are forecasting further 50bps more rate cut in 2024 but the language was nuanced and less dovish. One Member voted against 50bps rate cut, which has been rare in recent times. The FED (Federal Reserve) statement talked of “further adjustments” to policy rate and further gave a positive outlook on growth whilst noting that inflation is near 2% target but remains elevated. The FED is likely to continue to monitor the labour markets was further actions. Markets were not enthused by the overall policy outcome, which may have been perceived less dovish, and US yields were higher than the lows seen in recent week. Going forward, incoming data is likely to dictate further rate actions.”
Trideep Bhattacharya, President & CIO-Equities, Edelweiss MF:
Fed rate cut was cut deeper than expected, change in US economic forecasts indicate a soft patch than recession, paves way for rate-cuts in emerging markets, positive for capital flows into emerging markets.
Suresh Darak, Founder & Director, Bondbazaar:
“Fed rate action is a pivot which is likely to boost money flow to emerging markets and lead to increased demand across asset classes. It may lead to a rate cut cycle in India, which will result in demand and price escalation of long duration bonds”.
Ervin Tu, Prosus Group President & Chief Investment Officer:
“The Fed’s cut today is an important signifier that growth, no longer inflation, is the priority for the U.S. economy. While US VC funding is improving – we saw a 9% YoY rise in deal volumes in H1 2024 versus a 30% YoY reduction in 2023 – the impact of lower interest rates can further stimulate deal flow. With cheaper access to capital, start-ups will be encouraged to invest in themselves for long-term growth and capital providers will be more prepared to take risk. At Prosus, we continue to be excited as we always are at the prospect of backing innovative, long-term winners in whatever macro environment.”
(Prosus Group is a global consumer internet group and one of the largest technology investors and operators in the world.)
Deepak Agrawal, CIO-Debt, Kotak Mahindra AMC:
“With FOMC gaining greater confidence that inflation is heading towards 2% and risk of achieving employment and inflation goals are evenly balanced, FOMC decided to reduce the policy rates by 50 bps first time since 2020, broadly in line with market expectation. FOMC guides incremental 50 bps rate cut in CY 2024 and 100 bps rate cuts in CY 2025 (cumulative 200 bps rate cut between today and Dec 2025). Core PCE target for Q4 CY 2025 has been pegged at 2.3% and real policy rates would be down to 1-1.25% by Dec 2025. Post today’s action, Fed action would be data dependent and unless growth data worsen significantly (we assign a low probability of same) we believe subsequent policy action would be 25 bps.”
Earlier in the day, Federal Reserve issued FOMC statement: The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent. In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
