Fed Policy Cut Dec 10 2025 Impact on Indian Equity Markets, Will Market Revive?

On December 10, 2025, the U.S. Federal Reserve announced its final policy decision of the year: a 25 basis point (bps) rate cut.
This brought the U.S. policy rate down to 3.50%–3.75%, marking the third consecutive cut in 2025.

While the move is primarily aimed at stabilizing the U.S. economy, it also has significant implications for emerging markets, such as India, particularly for equity markets, foreign capital flows, and currency movements.

Why the Fed Cut Rates: The U.S. Economic Background

The Fed’s decision was influenced by mixed economic signals in the U.S.—signs of a cooling labor market, rising inflation due to tariffs, and an economy that is slowly losing momentum.

Key U.S. Economic Numbers

Here is a simplified view of the main indicators that shaped the Fed’s call:

Labor Market & Inflation Snapshot (2025)

Indicator	Value / Projection	What It Means
Unemployment Rate (Sep 2025)	4.4%	Labor market cooling
Projected Unemployment (End 2025)	4.5%	Further weakening expected
PCE Inflation (2025 Projection)	2.9%	Higher than ideal
Core PCE Inflation (2025 Projection)	3.0%	Sticky inflation
Number of Fed Rate Cuts in 2025	3 cuts	Fed moving toward neutral policy

The Fed emphasized that a rate hike is unlikely, and future policy decisions will depend on how employment and inflation evolve.

How the U.S. Rate Cut Affects India

For India, the impact primarily comes through capital flows, investor sentiment, and the rupee-dollar exchange rate.

Why Lower U.S. Rates Benefit Emerging Markets

• When U.S. rates fall, returns on U.S. assets decrease.
• Global investors start looking for higher returns elsewhere.
• India, with strong growth prospects, becomes an attractive destination.

As Ross Maxwell from VT Markets notes, a dovish Fed generally boosts global risk appetite, encouraging FIIs to put more money into emerging markets like India.

Expected Benefits for Indian Markets

1. FII Inflows Could Improve

Until early December 2025, FIIs were net sellers in Indian equities.

FII Activity (Dec 2025)	Amount
FII net selling	Rs. 14,819.29 crore

A friendlier global rate environment may reverse this trend.

2. Rupee Could Strengthen

Higher foreign investment typically strengthens the Indian Rupee (INR).
A stronger rupee helps India by making key imports like crude oil cheaper.

3. RBI Gets More Room to Cut Rates

If global rates go down, the RBI faces less pressure to defend the rupee by keeping Indian rates high.
This gives the RBI space to cut rates further and support domestic growth.

RBI Rate Cuts in 2025	Total Reduction
Number of cuts before Dec 2025	3 cuts
Total reduction	100 bps

More cuts could encourage borrowing, consumption, and investment.

How Indian Stocks May React

Since the 25 bps cut was expected, the immediate reaction is likely positive but moderate.

Likely Market Behaviors

• Indian equities may open higher.
• Sectors such as financials, cyclicals, banking, IT, and realty may see positive traction.
• If the Fed’s commentary appears strongly dovish, the rally could broaden.

A Mixed Outcome for Export Sectors

• IT and pharma benefit when the rupee weakens.
• A stronger rupee could reduce their earnings in rupee terms.
• So the impact on exporters may be neutral to slightly negative.

Also Read | Apple Stock Price Target 6 Months Forecast from November 2025

Why Analysts Are Still Cautious

Despite the positive sentiment, experts warn that the Fed usually cuts rates during economic stress, not strength.
This could mean global growth risks are rising.

Key Risks to Watch

Concern	Explanation
Economic slowdown in the U.S.	Rate cuts often signal deeper weakness
Shift toward safe havens	Investors may prefer gold/silver during instability
High Indian valuations	Expensive markets may limit foreign buying
Future Fed guidance	Any hint of prolonged tightness could reverse FII flows

India’s Growth Outlook Remains Strong

Fiscal Year	Projected GDP Growth
FY26	6.5%
FY27	6.7%

India remains the fastest-growing major economy, but sustaining equity momentum requires strong domestic earnings and stable policies.

Conclusion: Fed Policy Cut Dec 10 2025 Impact on Indian Equity Markets

The Fed’s December rate cut is a positive external factor for India.
It may support the rupee, attract FIIs, and provide space for the RBI to ease policy further.

But the true strength of Indian markets will depend on:

• corporate earnings,
• domestic demand,
• fiscal discipline, and
• stable policy direction.

In short:

The global tide has turned in India’s favor, but India’s own fundamentals will decide how far the market can rise.

Disclaimer

The above article is not investment advice. Consult your advisor before making any move.

The transmission of U.S. monetary policy to the Indian market acts like a global tide: a rising tide lifts all boats, making Indian equities more buoyant through capital flows and currency strength. However, the true resilience of the Indian market—how far it floats—is determined by its own depth, anchored by strong domestic fundamentals and policy management.