How Fed’s Rate Cut is Igniting a Rally in Banking, IT, and Realty Stocks?

Synopsis: The December Feds meet announced another rate cut, which this time gets the interest rates to the 2022 levels, by reducing them by 25 basis points to 3.50- 3.75 percent

The US Federal Reserve cut interest rates for the third time this year, bringing the federal funds rate to its lowest since 2022. The U.S. The Federal Reserve’s 25 basis point rate cut in December 2025 has triggered widespread analysis about its impact on India’s stock market, the rupee’s exchange value and the gold market. 

The Federal Open Market Committee (FOMC) lowered the federal funds rate to 3.50 percent – 3.75 percent , marking a third consecutive cut amid economic uncertainties. The following day Nifty IT and Nifty Realty closed close to 1 percent higher for the day, while Bank Nifty went up by just 0.5 percent.

In this article we are going to understand if this trend is going to continue for the coming weeks or not, along with talking about the potential impact on gold and rupee value.

Indian Stock Market and its Sectors

A Fed rate cut typically loosens global financial conditions and can positively influence emerging markets such as India. Lower U.S. interest rates can reduce the strength of the dollar. Even though the FII are still polling out funds from the market, there is a chance of  improving risk sentiment and encouraging foreign capital flows into Indian equities. According to industry analysis, investors often view such cuts as supportive for risk assets like equities, which could potentially boost the performance of the indices . 

For the Indian markets specifically, analysts note a mixed effect. Lower global borrowing costs can enhance liquidity and benefit sectors reliant on global capital, such as financials, IT and real estate. Banks and NBFCs, for example, may experience cheaper global funding costs, supporting credit growth. Similarly, sectors like consumer discretionary and infrastructure could benefit as improving global liquidity boosts investor appetite for growth-oriented stocks.

However, there is also caution. If the Fed’s rate cut is interpreted as a response to weakening U.S. economic growth, it may signal slower global demand. This scenario could dampen sentiment in export-oriented sectors like IT and pharma, which rely heavily on overseas revenue. In such contexts, Indian equities may trade with caution despite the supportive liquidity environment. Moreover, even though the sectors such as IT, Realty and Bank had shown a positive growth in the intraday, in the weeks that followed- these sectors and majority of its stocks had seen a significant dip as well.

Rupee Value

The rupee’s reaction to the Fed’s December 2025 cut has been subdued. The Indian rupee has weakened or hovered near the 90 per U.S. dollar level, trading in a range influenced by portfolio flows and broader macro pressures ahead of the Fed’s decision. 

Even with the rate cut, the rupee has shown limited strengthening because factors such as foreign investor outflows, weak trade dynamics, and geopolitical tensions have continued to weigh on the currency. The rupee’s performance suggests that while lower U.S. rates have theoretically reduced the pressure on Asian currencies, persistent external sector challenges may mute any immediate upside for the Indian rupee. 

In some cases, analysts also believe that the rupee could remain under pressure in the short term and continue trading within a subdued range unless there is strong improvement in trade balances or a resolution to trade tensions is brought forward. As of 22nd December, the rupee exchange value is around Rs 89 for every dollar.

Gold Price Impact

Gold historically benefits from lower interest rates because non-yielding assets become more attractive when real yields fall. According to market analysis on precious metals, lower U.S. interest rates boost the appeal of gold and silver, creating upward momentum in prices. In India, this trend is visible with gold prices pushing above Rs 1.36 lakh per 10 grams after the Fed’s rate decision, while silver also hit its record highs.

The expectation of a softer dollar growth, reduced opportunity cost for holding bullion and ongoing economic uncertainties strengthens gold’s safe-haven appeal. As global investors seek refuge in the precious metals during periods of monetary easing and risk aversion, gold prices may remain elevated. 

Conclusion

The December 2025 Fed rate cut has had a complex effect on India’s financial landscape. While it boosts global liquidity and supports risk assets potentially aiding Indian equities lingering global growth concerns may still weigh on sector-specific performance. The rupee’s modest reaction highlights India’s structural external vulnerabilities, while gold’s rise signals a continued preference for safe-haven assets in an uncertain monetary environment.

Staying attentive to global macro data and trade developments will be key for Indian investors navigating these cross-market dynamics, as sectors such as banking and IT are expected to move sideways unless there is a clear improvement in FII inflows and better trade deals have emerged.

Written by Adithya Menon

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