How the Stock Markets will be impacted by the upcoming Interest rate cut? | Akshat Shrivastava

Summary

In this video, the presenter discusses the historical correlation between interest rate cuts by the Federal Reserve and stock market performance, highlighting past instances where market declines followed rate cuts. With the Fed chairman's recent announcement of a potential rate cut in September, the presenter advises viewers on portfolio management, emphasizing the importance of cash hedges and avoiding overvalued assets. They also stress the ongoing need to invest in the stock market despite market uncertainties, and provide insights into sectors likely to perform well in the upcoming months, such as lending-oriented businesses and broking services.

Takeaways

• 📈 The presenter discusses the historical relationship between interest rate cuts by the Federal Reserve and stock market performance, noting that market falls have often followed rate cuts.
• ⏰ The Fed chairman has announced a planned interest rate cut in September, which traditionally might be seen as a positive for the market, but the presenter suggests the market's reaction may not be straightforward.
• 💡 The presenter is taking a cautious approach by building cash hedges in his portfolio and advises viewers to understand the concept of cash hedging as a risk management strategy.
• 🚫 Despite potential market volatility, the presenter emphasizes that this is not a time to stop investing in the stock market, as predicting market corrections is challenging.
• 📊 The presenter provides an analysis of the US small cap index (Russell 2000) and the Indian small cap index, suggesting that the latter may be overvalued and could pose more risk.
• 🌎 The video script highlights the influence of US interest rate policies on India's economic indicators, such as home loan and business loan rates, which tend to follow the US's lead.
• 📉 Historical data suggests that market downturns have often coincided with economic crises, not merely interest rate cuts, indicating that the market's direction is multifactorial.
• 💹 The presenter forecasts a range-bound market for the next 6-12 months, with Nifty potentially moving between 22,000 and 28,000, based on current economic indicators.
• 🏦 The presenter identifies lending-oriented businesses, particularly housing finance companies, as potentially benefiting from a reduction in interest rates, which could stimulate housing and infrastructure activity.
• 📈 The presenter suggests that certain sectors, such as housing finance, broking businesses, private banks, and manufacturing, may offer good investment opportunities due to their value or deep value status.

Q & A

What is the main relationship discussed in the video script between interest rate cuts and the stock market?

The script discusses the historical relationship between interest rate cuts by the Federal Reserve and the stock market's performance, noting that sometimes the market falls despite rate cuts, often due to underlying economic crises.

What does the speaker suggest about building cash hedges in the current economic climate?

The speaker emphasizes the critical importance of building cash hedges in the current economic climate, as they themselves are doing, to protect against potential market volatility.

Why does the speaker argue that it's not the time to stop investing in the stock market despite potential overvaluation?

The speaker argues that it's not the time to stop investing because no one can accurately predict market corrections, and the market could potentially rise further before any significant fall.

What is the speaker's view on the valuation of the US small-cap index, Russell 2000, and Indian small-cap indices?

The speaker believes that the US small-cap index, Russell 2000, does not appear overvalued, but they feel that the Indian small-cap index is overvalued and carries more risk, suggesting it's critical to exit such assets.

How does the speaker analyze the impact of US interest rates on India's economic policies?

The speaker explains that India typically follows the US's lead on interest rate policies, meaning that changes in US rates often correspond to similar changes in India, affecting various loan rates and the economy.

What does the speaker suggest about the anticipated interest rate cut by the Fed and its potential market impact?

The speaker suggests that the market may not necessarily rally after the Fed's anticipated interest rate cut, as the market often prices in such news in advance.

What historical examples does the speaker provide to illustrate the complexity of the relationship between interest rate cuts and market performance?

The speaker cites the market falls of 2000, 2008, and 2020, explaining that these declines were not solely due to interest rate cuts but were also influenced by significant economic crises such as the dotcom bubble, the subprime mortgage crisis, and COVID-19.

What is the speaker's stance on the current state of the economy and the absence of a major crisis in 2024?

The speaker believes that unlike previous periods of market decline, there is no significant crisis occurring in 2024, which could mean that the market's response to interest rate cuts might be different.

What are the speaker's predictions for the US interest rates over the next few years, and how might this affect India?

The speaker predicts that US interest rates may decrease from the current 5.5% to around 5% in 2024, 4% in 2025, and 3% in 2026, which could have significant implications for countries like India with high borrowing costs.

What types of stocks does the speaker recommend for investment considering the current economic outlook?

The speaker recommends focusing on lending-oriented businesses, broking businesses, private banks, manufacturing, and infrastructural companies, as these sectors are expected to perform well in the given economic scenario.