The US Rate Cut, Short-India Long-China?, and Manish Chokhani's Legacy
Personal finance, investment philosophies and fun facts - all without the jargon.
Welcome to the ninth edition of the Bodhi Newsletter! In today’s edition, we cover:
The US Rate Cuts: What is it and how does it impact the stock markets?
The Chinese Stimulus Package: Why foreign investors are investing in China
Patience and Prosperity: Manish Chokhani’s Long-Term Vision for Investing in India
The US Rate Cuts: What is it and how does it impact the stock markets?
By Rajit Mundhra
On September 18, under the leadership of Chair Jerome Powell, the US Federal Reserve (US Fed) cut interest rates for the first time since 2020. The Fed lowered interest rates by 50 basis points (0.5%) to a range of 4.75 to 5 per cent. This decision was highly anticipated by several brokerage houses considering several data points. Going ahead, I intend to shed light on several factors that led the US to cut rates and its impact on its economy.
What is a rate cut, and why does an economy cut rates?
Which rate are we continuously talking about? It is the interest rate which affects the entire money supply in an economy. Also often termed as the policy rate, it is the rate at which one borrows money thereby affecting the total availability of money in an economy. It is set by the central bank of the country like RBI for India and the Federal Reserve for the US. The central bank determines the interest rate for an economy and increases/decreases it as and when required. A rate hike is where the interest rate is increased thereby increasing the cost of borrowing. The central bank rate hikes to curb inflationary pressures by reducing the availability of money in an economy.
In the same pattern, a rate cut is when the interest rate is decreased thereby decreasing the cost of borrowing. A rate cut takes place to stimulate economic growth when an economy faces recessionary and high unemployment fears with decreasing demand. Particularly for the US, the unemployment rate shot up from 3.4% in 2023 to 4.3% in 2024. At the same time, US CPI stood at a staggering 4-year low of 2.1%. Fed also mentioned one of the reasons for the rate cut was to achieve its target of 2% inflation.
US unemployment rate since 2022:
What are the potential impacts of rate cuts in the US?
Powell described the move as a "recalibration" to account for the sharp decline in inflation. The reduction signals a significant change in US monetary policy. This rate cut is aimed at easing consumption. Additionally, it is really helpful for businesses (upcoming and established) to take advantage of cheaper loans to smoothen operations and expansion. With new businesses coming up and existing ones expanding, there is set to be a rise in employment.
A graph reflecting the correlation between CPI and Interest rate over the past 5 years:
With an increase in employment, there will be an increase in household consumption, following an increase in their disposable income. When interest rates fall, the value of existing bonds increases. This is because the fixed interest payments on these bonds become relatively more attractive compared to new bonds with lower interest rates.
Returns on savings accounts fall therefore being less favoured financial assets. People will tend to switch towards investing in the stock market speculating higher returns. Hence, the US stock market can be seen to have a positive impact on a rate cut. However, the US currency can weaken as it becomes less attractive to foreign investors leading to a potential depreciation in the currency value. This can make US exports more competitive in the global market.
In conclusion, a Fed rate cut is a powerful instrument to stabilise the US economy during economic distress. While it benefits consumers and businesses by lowering borrowing costs, it also affects savings and investment patterns. Chair Jerome Powell’s recent focus on supporting the labour market highlights the Fed’s broader goal of fostering sustainable economic growth while achieving targeted inflation. A common man can view the benefits of a rate cut as cheaper loans, but savers may face lower returns. However, the financial markets often rally in anticipation of easier monetary policy bringing out future growth.
The Chinese Stimulus Package: Why foreign investors are investing in China
By Shagun Khetan
‘China announced it would issue bonds worth 10 trillion yuan ($1.4 trillion) over the next 3-5 years.’
Since September 24, China has cut its reserve requirements, reduced mortgage rates for existing home loans, and raised funding support for commercial bank loans to locally-owned state firms for purchasing excess housing inventory for conversion to affordable housing units. The one-year loan prime rate (LPR) was reduced from 3.35% to 3.1% and the five-year LPR from 3.85% to 3.6%, rates which are at historic lows.
Why? What does that mean for India?
For the first question—well, a lot of reasons. This announcement is one of the many efforts by the government to revive its sagging economy, boost its depressed property market suffering a crisis of consumer confidence, and tackle mounting amounts of debt with the local governments.
Whether this stimulus worked for China or not is debatable, but it definitely had been devastating for the Indian stock market. It triggered an immediate capital outflow by the Foreign Portfolio Investors (FPI), plunging the stock market into a free fall. There were other reasons of course, for this flight of money, including but not limited to uncertain geopolitical scenarios, US elections, and depressing Q2 results of India Inc., but the Chinese stimulus package remained the major cause of the upheavals in the market. Just after the package was announced, several investors moved to China to encash the cost advantages quickly.
[These stimulus measures—reducing the loan prime rate (the rate at which commercial banks can borrow money from the People’s Bank of China(PBOC), reducing reserve ratio, easing regulatory requirements for credit, etc. make investment and consumption relatively cheaper, thus paving the way for increased production and eventually increased profits for the investors, including FPIs.]
Several global investors go as far as to claim the recent measures are not a stimulus package but a debt swap to shore up local governments’ finances. These measures are not intended to boost consumption but to stop a financial crisis domestically in China. These foreign inflows come at a cost to emerging markets like India.
The heavy FPI selling so far in October —the highest in a calendar month —has however been largely absorbed by the Domestic Institutional Investors (DIIs) led by mutual funds, who are still sitting on a good pile of cash waiting to be deployed at lower market levels. This trend of FPI selling and DII buying is likely to be sustained in the near term, the rationale behind FPI selling being elevated valuations in India and the cheap valuations of Chinese stocks, which the FPIs have been buying aggressively since mid-September.
Patience and Prosperity: Manish Chokhani’s Long-Term Vision for Investing in India
By Kavya Sharma
Manish Chokhani is a prominent name in Indian finance, celebrated for his strategic insights, keen market sense, and deep-rooted relationships with India’s leading corporations. His journey began at ENAM Securities, where he served as CEO, transforming it into a trusted partner for top companies like Infosys, Zee, Reliance, and Vedanta. In 2011, he led ENAM’s $400 million merger with Axis Bank, creating Axis Capital Ltd. (ACL), which has since established itself as a leader in India’s investment banking sector.
Through ENAM Asset Management, which he co-founded, Chokhani has played a vital role in managing the wealth of India’s most influential business families and supported international funds investing in India. He continued to shape the industry as Chairman of TPG Growth India and as an advisor to prominent funds like ZA Capital and India Capital Fund.
His extensive experience includes advising on strategic investments and fostering innovation in India's evolving market through platforms like CNBC and Economics Times Now.
Market Outlook and Investment Philosophy:
When talking about the Indian market in a recent interview, Chokhani shared insights into market cycles, warning against viewing the market as a broad bubble. He argued that while specific sectors, such as defence and railways, may be overvalued, the overall market remains on solid ground. He emphasized the importance of understanding market cycles and trends, advising caution in sectors showing rapid growth, and reminding investors of the cyclical nature of market leadership.
A graduate of the London Business School (one of its youngest) and a Chartered Accountant, his insight into market cycles reflects a strong grasp of financial history. Each decade, he notes, sees a sector bubble, from China and commodities in the 2000s to tech in the 2010s. For Chokhani, the 2020s are India’s time to shine, driven by strong fundamentals and global shifts toward emerging markets.
Looking forward, Chokhani sees India as a hotspot for global investments, predicting a substantial increase in foreign inflows driven by India's economic growth, robust governance, and emerging investment opportunities. He advocates for patient, well-researched investing and is optimistic about the long-term wealth potential in India, recommending a balanced approach rather than a reactionary one.
Future of Indian Financial Markets:
Chokhani believes India is poised to be the centre of a significant market "melt-up," driven by a solid domestic environment—steady governance, thriving entrepreneurship, effective reforms, and a bold new generation of investors. With just 6-7% of assets currently in equities, he sees this as the beginning of a trend that will steer Indian savings from traditional assets like gold and real estate toward equity markets. Chokhani’s view is that India is still in the early stages of its financial expansion and that this trend will only gain momentum as domestic and foreign investors increasingly recognize the country’s potential.
Chokhani's confidence in India is bolstered by foreign investment trends, where India’s market cap is rising while international inflows remain comparatively low. He predicts that, as India’s economy strengthens, foreign investors will increasingly look to diversify into Indian markets, especially as economic challenges persist in the U.S., Europe, and Japan. With India’s growing inclusion in global indices like MSCI and the trend of financialization through Systematic Investment Plans (SIPs), he sees a bright future for Indian equities.
Chokhani advises investors to avoid the “FOMO” (fear of missing out) mentality, stressing patience and a balanced approach. Inspired by Warren Buffett, he likens smart investing to Test cricket—slow, steady, and long-term focused. He believes India’s growth story is just beginning, with substantial wealth creation still on the horizon.
Beyond finance, Chokhani is passionate about sports, art, and music, and practices Vipassana meditation, bringing a balanced perspective to life and work. He encourages investors to “plant seeds” and let wealth grow over time—a philosophy that’s defined his career and lasting influence on India’s financial landscape.
In essence, Manish Chokhani’s investment approach is both grounded and forward-looking. Rather than chasing short-term gains, he values patience and discipline, understanding that real wealth is built over decades, not days. Chokhani speaks about investing with a sense of calm and balance, favouring a “Test match” approach over the fast, risky moves of “T20 cricket.” He urges investors to stay the course, warning against the lure of overhyped sectors and emphasizing that, while the market’s cycles may bring turbulence, India’s long-term growth story is just beginning.