Arvind Sanger on how Fed policies could impact inflows into the Indian market

Global equities are expected to end the week on a positive note as investors reacted to the latest policy move from the US Federal Reserve, which came slightly later than expected but had a tone interpreted by many on the Street as friendlier than feared. The latest rate cut was seen as less aggressive than expected, a nice distinction that significantly affected market sentiment. Geosphere Capital’s Arvind Sanger noted in an interview with ET Now that while the Fed had announced just one cut, followed by a hold, Chairman Jerome Powell had left the door open for another possible move in the next few meetings, but not in January. This subtle shift was enough to allay fears and boost markets, especially in the US, where new record highs continue to be reached.

Capital flows are also closely monitored. Sanger emphasized that the US has been doing well for a long time, while emerging markets have lagged in recent years. However, as growth picks up in other regions and if President Trump pushes the Fed toward a dovish stance, dollar weakness could emerge, prompting investors to look for non-dollar assets that offer growth. Emerging markets, including India, could benefit, especially if domestic fundamentals continue to improve, attracting capital flows that largely bypassed the country in 2025.

Looking at future rate cuts, Sanger emphasizes that a move in January is unlikely, although a cut in the first quarter is still possible. Markets are also speculating about the potential impact of a new Fed governor to replace Powell, possibly with a dovish bias. If this scenario unfolds, liquidity could rise, boosting global equities and benefiting non-dollar markets. Sanger explained that while the Fed may only adopt a mildly dovish stance in the near term, a more dovish stance in the second half of 2025 could further drive positive sentiment.

While the Fed’s policy action this week hasn’t dramatically changed the outlook, the subtle change in tone has been enough to cheer markets and fuel optimism. Investors are now closely watching not only Powell’s words, but also the political environment that could shape US monetary policy in 2025. If the Fed continues on an easing path, both the US and emerging markets could see renewed momentum, with non-dollar assets becoming the main beneficiaries.