Lookback: How the Fed's September 2024 Cut Reshaped Indian Equities

The half-point cut that bought Dalal Street one euphoric fortnight and one brutal hangover.

On the morning of September 19, 2024, the Nifty 50 gapped up through 25,500, the Bank Nifty tore past 52,000, and traders at every prop desk in Lower Parel did the same calculation: the Federal Reserve had finally blinked. Fifty basis points, not the consensus twenty-five. Jerome Powell, standing at the lectern in Washington the previous evening, had delivered the first US rate cut since the pandemic emergency easing of March 2020. The signal he sent was not subtle. India received it the way a parched field receives the first monsoon shower, and for roughly nine trading sessions the response looked like vindication for every bull who had spent the summer arguing that the global liquidity cycle was about to turn. Then October arrived. Foreign portfolio flows reversed with a violence that would, by the end of the month, mark the largest monthly FII outflow in Indian market history. The Fed cut had not been wrong. The market's interpretation of what it implied had been.

This is the lookback I owed the piece. Eight months on, with the dust settled and the late-2024 China rotation now a known story rather than a live trade, the September 18 event reads differently than it did inside the moment. The cut was real. The trend change it was supposed to confirm was not.

Pre-event positioning: a market leaning long, but quietly

The two weeks leading into the FOMC decision had the texture of a market that had already done its homework. The Nifty 50 had been grinding higher through the first half of September 2024, having broken decisively above 25,000 on September 3 and refusing to give the level back on any subsequent dip. The Bank Nifty, which had spent most of August looking heavy, found a bid as soon as the dollar index began softening in the second week of September. By Friday, September 13, the DXY had slipped under 101, the 10-year US Treasury yield had retreated below 3.7 percent from the 4.4 percent it had touched in April 2024, and Indian government bond yields were quietly compressing in sympathy. The 10-year G-Sec, which had spent the year stuck between 6.95 and 7.10 percent, was trading near the lower end of that range going into the meeting.

Foreign portfolio investor flows in the cash segment for the week ended September 13, 2024, had already turned net positive after a flat August. The signal was not loud. It was the kind of accumulation that shows up in NSE participant-wise OI data before it shows up in headline numbers. FII long-short ratios in index futures had crept higher from the mid-summer trough. Bank Nifty open interest was building on the call side at 52,000 and 53,000 strikes, the kind of OI build that real-money desks add when they expect upside delivery rather than the gamma-scalping pattern of an event-day positioning trade.

The brokerage tape in the 72 hours before September 18 was almost unanimous that a 25 basis point cut was the base case. Morgan Stanley's India strategy note dated September 16, 2024 framed the upcoming meeting as the start of a synchronised global easing cycle and tilted overweight financials and rate-sensitives. Goldman Sachs and Nomura were similarly positioned. The dissent, where it existed, came from a small handful of macro desks that flagged the risk of a 50 basis point cut being read by markets as a panic signal rather than a confidence one. That dissent was correct in its framework and wrong in its timing, which is the worst possible combination for anyone running a book.

What the positioning data made clear was that the Indian market was not blindsided. It was leaning long, quietly hedged, and waiting for permission to commit. Powell handed out the permission slip and then, for good measure, doubled the dose.

Caption: The weekly frame showed the post-cut spike to all-time highs in the last week of September, followed by the October reversal that erased most of the move.

Event day and the morning after

The FOMC statement and Powell's press conference landed on the evening of September 18, 2024, Indian time. By the time Asian markets opened on September 19, the magnitude was clear: a half-point cut, accompanied by a dot plot that pencilled in another 50 basis points of easing through the rest of 2024. The Indian rupee strengthened against the dollar in early trade on September 19, the USDINR pair sliding from the 83.90 zone toward 83.60 within the first hour of NSE cash session. The dollar index dropped under 100 for the first time since mid-2023. Brent crude, which had been trading in the high 60s on demand concerns from China, did not move much, which itself was a small mercy for the import-cost narrative.

The Indian equity reaction was immediate and broad. The Nifty 50 gapped up at the open and added more than one percent in the first half hour. Bank Nifty led, as it had to. Realty stocks gapped up sharply at the bell. DLF, Oberoi Realty, and Macrotech Developers were all locked higher in the first leg of trade. NBFC names, which had been languishing through the summer on RBI's tightening stance against unsecured retail credit, caught a bid that surprised even their long-term holders. Bajaj Finance, which had been treated as a value trap for most of 2024, ripped through resistance in the first session and added meaningfully to its market capitalisation by close.

The intraday tape was the kind that quants describe as a single-factor day. Anything rate-sensitive worked. Anything dollar-exporter-heavy did not. IT services, which had been the market's hiding spot through August, lagged on the day even though the longer-term read on a Fed cutting cycle should have been supportive once the lag effects on US enterprise spending played through. The market did not care. The market wanted financials, real estate, and consumer durables, and it bid them with the kind of conviction that does not ask permission from valuations.

Caption: The daily frame captured the sectoral dispersion, with realty and PSU banks leading the post-cut sessions and IT lagging through the rally before the broader October roll-over.

The cash market FII print for September 19, 2024 was strongly positive on the NSE provisional data, and the trend continued through the following sessions. The brief's anchor of ₹15,000 crore of net FII inflow into Indian equities in the week following the cut held up against the SEBI and NSDL flow data published in the subsequent reporting cycle. That number, in the context of a year that had already seen meaningful FII selling pressure, looked at the time like the start of a structural re-rating. With hindsight it was a tactical squeeze.

DII flow on the same days was instructive. Domestic institutions, which had been the only buyers of size for most of 2024, did not chase. The SIP-led mutual fund machine kept deploying its monthly cadence, but the discretionary DII desks took the opportunity to lighten positions into FII demand. That cross-current is visible in the broad-based but not extreme nature of the move. Index levels rose. Breadth was healthy without being euphoric in the small and mid-cap segment, where the SEBI stress-test commentary from earlier in the year still cast a shadow.

Sector winners and losers in the first five sessions

By the close of trade on September 25, 2024, the post-cut sectoral table told a coherent story. Nifty Realty was the clear leader, a function of both the rate-sensitivity narrative and the residential cycle that had been running hot through 2024. Nifty PSU Bank ran second, helped by the dual tailwind of a softer rupee being good for trade financing volumes and the broader macro re-rate. Private banks did fine but did not lead, partly because their valuations had less room to expand and partly because their NIM sensitivity to a Fed-led easing was indirect at best.

The losers were thin on the ground in absolute terms, because almost everything had a green print, but on a relative basis Nifty IT and Nifty Pharma underperformed the headline index. The IT underperformance was somewhat puzzling on a pure macro read, since the sector had been hostage to US enterprise spending sentiment for two years and a Fed pivot should logically have been supportive. The market's read at the time was that a 50 basis point cut signalled recession risk in the US rather than soft landing, and IT services, being directly leveraged to US discretionary spending, would feel that first. That read was wrong over the subsequent year as US growth held up, but it dictated trading flows in the immediate aftermath.

Within autos, two-wheelers outperformed four-wheelers on the day, which fit the rural recovery thesis that had been building through the monsoon. Within capital goods, defence stocks took a back seat to power and infrastructure, with NTPC, Power Grid, and Adani Power all participating in the rally on the logic that lower global rates would compress India Inc's borrowing costs and accelerate the capex cycle. That logic was not wrong. It simply played out on a timeline measured in quarters, not days.

The metals complex was the dark horse. Tata Steel, Hindalco, and JSW Steel all caught a bid on the combined narrative of a weaker dollar lifting commodity prices and a potential China stimulus follow-on. That second leg materialised days later when the Chinese authorities announced their late-September policy support package, which became the actual hinge point of the next leg of global flows.

Follow-through: the China pivot that broke the trade

The Indian rally extended through the last week of September 2024. On September 27, 2024, the Nifty 50 printed a fresh all-time high in the vicinity of 26,277, and the Sensex touched record territory in tandem. Volatility, measured by India VIX, sat below 12 through most of that week, which in retrospect was the market's loudest tell. Cheap insurance always sells before a regime change.

The break came from Beijing, not Washington. The People's Bank of China and the State Council rolled out a coordinated stimulus package in the last week of September 2024 that included reserve requirement cuts, property market support measures, and direct liquidity support for equity markets. Global allocators who had been underweight China for two years and had parked the relative overweight in India suddenly had a reason to reverse the trade. The October FII print would, by month-end, register the largest monthly outflow from Indian equities in cash market history at approximately ₹1.14 lakh crore. The Nifty 50 gave back the entirety of its September post-cut gains by the second week of October. Bank Nifty fared worse. Realty, the September darling, became the October casualty.

Caption: The 30-minute frame showed the gap-up open on September 19, the broad-based intraday trend, and the staircase higher that ran through the next week before the October top.

The brokerage strategy notes that landed 48 to 72 hours after the Fed event captured the optimism in real time. Most of them upgraded Indian financials and rate-sensitives, pencilled in a 28,000 Nifty target for end-2024, and described the move as the start of a multi-quarter re-rating. By the third week of October those notes were being quietly walked back. The Morgan Stanley follow-up on October 14, 2024 trimmed the tactical overweight on India. Goldman's emerging market team published a note that explicitly flagged the China rotation as the dominant flow story. The narrative had turned in three weeks.

What the September 18 Fed cut actually delivered, viewed from May 2026, was a textbook example of an event that confirmed a global liquidity shift without changing the relative-attractiveness equation that mattered most for Indian equities. The Fed cutting was bullish for emerging markets in general. It was specifically bullish for whichever emerging market happened to be the marginal beneficiary of incremental FII allocation. Through August and early September 2024, that marginal beneficiary was India by default, because China was uninvestable and the rest of the EM complex was too small to absorb size. The moment China opened the policy taps, the marginal beneficiary changed. India lost its bid not because the India story weakened but because the alternative finally became viable.

What the lookback teaches

Two readings of the September 18 cut survived the year that followed. The first is that the cut was the correct catalyst for the correct trade, and the trade simply ran into a competing catalyst. The second is that the cut was overinterpreted from day one, and the rally was built on a thesis that mistook a US-specific easing for an India-specific tailwind. Both readings have merit. The honest answer sits in the middle.

Indian equities did benefit from the Fed cut. The rupee strengthened, bond yields softened, the cost of capital narrative supported financials and rate-sensitives, and the immediate FII flow data confirmed the channel. None of that was illusion. What was illusion was the assumption that the marginal FII dollar would keep choosing India over the rest of the EM complex regardless of what those other markets were doing. The September rally priced in a permanent shift in relative attractiveness that the October flows immediately revealed to be temporary.

For traders who took the event at face value and bought the breakout, the trade worked for nine sessions and then unwound. For investors who used the event to add to high-conviction structural positions in domestic-facing financials, capital goods, and consumption names, the underlying thesis remained intact through the volatility, and most of those names recovered through the first quarter of 2026. For positional bulls who chased realty and PSU banks at the September highs, the lesson was the old one: liquidity-event rallies are sold by smart hands into retail demand, and the smart hands had already lightened up by the time the headlines turned euphoric.

The September 2024 cut, in retrospect, was a hinge, not a beginning. It marked the end of the synchronised tightening regime that had defined 2022 and 2023. It did not mark the start of an unbroken bull run for Indian equities. The market that emerged from the October correction was a different market, one that had to earn its highs again on the back of earnings rather than flows.

Verdict

Stance: NEUTRAL on the event as a standalone trend-changer for Indian equities.

Horizon: Verdict is rendered with the benefit of the full 3-month follow-through window (September 18, 2024 through mid-December 2024) and the eight-month look-back since.

Rationale: The September 18, 2024 Fed cut delivered the macro tailwind it was supposed to deliver. The Indian market's interpretation of that tailwind as a permanent re-rating catalyst was wrong, and the China stimulus pivot of late September 2024 revealed the interpretation as wrong within nine trading sessions. The event was real, the immediate reaction was rational, and the follow-through was overrun by a competing flow story. Net of the round trip, the cut did not change the trend. It tested it, and the trend that survived was the domestic one driven by earnings and SIP flows, not the FII-flow narrative that the September rally had briefly resurrected.