Healthcare and Manufacturing Expected to Thrive with Upcoming Fed Rate Cut

A report by Motilal Oswal predicts that the healthcare and manufacturing sectors will benefit the most from the U.S. Federal Reserve's anticipated rate cut. The report highlights growth opportunities and challenges in sectors including BFS, retail, and hi-tech, as the Fed's decision draws near.

As the U.S. Federal Reserve's anticipated rate cut approaches on September 18, investors are cautiously optimistic about its impact on various sectors. According to a report by Motilal Oswal, healthcare and manufacturing are set to gain the most from the Fed's decision to lower interest rates, indicating robust growth prospects in the near future.

The healthcare sector is projected to be the fastest-growing vertical over the next 12 to 18 months. Despite being largely unaffected by rate cuts, healthcare is expected to thrive due to minimal insourcing threats. The report emphasizes that the sector's resilience, coupled with demand for innovations in biotechnology, clinical research, and digital health solutions, positions it as a key beneficiary of the upcoming rate cuts.

"Healthcare will be the fastest-growing vertical over the next 12-18 months. The sector is largely agnostic to rate cut tailwinds," the report stated. Additionally, the manufacturing sector shows high growth potential, particularly through technological advancements during the rate cut cycle. Lower interest rates are anticipated to drive technological investments, accelerating the industry's recovery.

Challenges remain in the manufacturing sector, such as limited IT services penetration in Europe. However, opportunities in technologies like generative AI (GenAI), digital twins, IoT, and connected factories are noteworthy. "Manufacturing also shows a strong case for recovery; a rate cut cycle will spur investments in technology, and the threat of insourcing here remains fairly low," the report noted.

The banking, financial services, and insurance (BFS) sector faces significant threats from insourcing despite the positive effects of rate cuts. Although some pre-GenAI spending exists in BFS, the adoption of GenAI solutions may be slower due to the complexity of enterprise-wide transformation. The report said, "BFS enjoys positive effects from rate cuts but faces significant challenges due to a severe insourcing threat, limiting its recovery potential."

The retail sector is expected to benefit from rate cuts as increased consumption in client markets, particularly in the U.S., is likely to fuel growth. The report mentioned that the sector could shift focus from cost-reduction strategies to revenue-generating initiatives.

Furthermore, the hi-tech sector ranks fifth in reaping benefits from rate cuts. While the cuts may moderately benefit the sector, the threat of insourcing remains significant. Many software companies are expected to maintain tight control over their intellectual property, limiting vendor opportunities. Ultimately, the report identifies healthcare and manufacturing as the top sectors poised to benefit from the U.S. Fed's anticipated rate cut, while also highlighting opportunities and challenges in BFS, retail, and hi-tech industries.

(With inputs from agencies.)