US Fed’s ‘hawkish’ rate cut expected; India market outlook neutral for 2026: Manulife Investments

Marc Franklin, Deputy Head of Multi-Asset Solutions, Asia at Manulife Investments, expects the US Federal Reserve to deliver a 25-basis point rate cut at its December 2025 policy meeting, which will signal caution rather than the start of a steady easing cycle. He said the Fed would stress that policy will remain dependent on incoming economic data.“The market’s expectation is probably for a hawkish cut,” Franklin said, adding that Chair Jerome Powell will likely indicate that “one shouldn’t expect the rate cut cycle to be on autopilot; it’ll be meeting to meeting.” He noted that this stance may lead the Fed’s dot plot to drop a previously projected rate cut for next year.

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Franklin pointed to a growing challenge around fiscal policy. Large budget deficits are pushing bond investors to price in a sustained period of higher term premiums and yields. He said there is a decision ahead on whether monetary policy should accommodate expansionary fiscal spending or counter inflation risks.Political dynamics are adding uncertainty. With President Trump calling for faster and deeper cuts, Franklin believes traders may soon start looking ahead to a potential shift in Federal Reserve leadership. The market could begin to price in a more dovish stance from “the post-Powell Federal Reserve from the second half of next year onwards,” he said.

Turning to India, Franklin held a neutral view for 2026. He said any gains will depend more on earnings growth than on valuation expansion. Other Asian markets, such as Korea and Taiwan, have enjoyed both stronger earnings and valuation rerating, while India’s multiples leave limited room for further upside.Also Read | Market extremely oversold; short-term bounce likely, says Rohit Srivastava

“For India, there’s probably not a great deal of room for valuation multiples to expand,” he said. The key factor will be whether the earnings and macro growth cycles “surprise to the upside.”

Franklin also flagged a risk around crude sourcing. A reduced supply of Russian oil could force India to pay higher import prices, which may weaken the currency and affect foreign investor returns. “The currency is an important component as well,” he said.

For the full interview, watch the accompanying video

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