India Better Placed Than Other EMs To Benefit From Fed Rate Cuts: Citi

Foreign inflows into India during the previous rate cuts have historically been negative in the short term in most instances. But India remains better places compared to its peers in the overall emerging markets this time, Citi said in its latest report.

According to Citi, global funds have been net negative in the immediate one to three months following the commencement of rate cuts in the US, in three out of four such instances.

"The key driver of short-term outflows is usually global risk-off scenarios," the report attributed.

However, over the longer period of 12 months after the rate cuts were commenced, the flows were positive in all cases as dollar weakness aided. "There has been USD depreciation in the recent past as well," Citi said.

The next Federal Open Market Committee meeting will be held on Sept. 17-18, 2024. Jerome Powell cemented that the world's largest economy may see rate cuts in September as inflation is on track to the 2% target. The "time has come" to adjust benchmark rates from their two-decade high, he said in the keynote address at the Jackson Hole Symposium last month.

A lower-than-anticipated cut in interest rate by the US Federal Reserve in September will have markets on edge and put Jerome Powell's wording in focus to understand the dovish trajectory, Andrew Holland, chief executive officer of Avendus Capital Pvt. told NDTV Profit in an interview.

"Even after cuts, policy rates around the world could settle at levels higher than witnessed in the past decade," said Citi.

While Citi's global peers believe India remains relatively better placed versus overall EMs, they nonetheless believe that the set-up is trickier for emerging market equities in general, it said.

Staples, utilities and healthcare were the best performers over the immediate 12 months during the rate cut cycles in the financial year 2008 period, Citi said. In fiscal 2019, healthcare, energy and telecom outperformed. "Across both cycles, healthcare did reasonably well, followed by consumer staples."

The brokerage is 'overweight' on banks, insurance, telecom, and healthcare. Meanwhile, consumer discretionary, information technology services and metals are the sectors Citi is 'underweight' on.

The brokerage sees some improvement on the rural side. Hence, it has added Hindustan Unilever Ltd. to its preferred stocks' list given the improving volumes, price hikes and sharp underperformance versus Nifty 50 over the last four years.