"The Federal Reserve has cut the interest rates to tide over the crisis in the US economy and the 25 basis point cut will not change the scenario for India or other global markets," Arun Kejriwal of Kejriwal Research and Information Service (KRIS) told PTI.

The US market went up after the rate cut was announced and some of the Asia markets also gained. Indian markets too opened higher on Thursday but Sensex plunged about 200 points due to profit booking, Kejriwal added.

The Fed cut overnight lending rate by 25 basis points to 4.5 per cent, in an attempt to prevent the turmoil in the housing and credit markets spilling over to the wider economy and tipping the US into recession.

"The pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction. Readings on core inflation have improved modestly this year but recent increases in energy and commodity prices may put renewed upward pressure on inflation," the Fed said in a statement.

Foreign institutional investors which have thronged the domestic markets over the past three years, had increased their thrust into Indian markets after the Fed had cut rate in its September 18 meet.

On September 18, the Federal Reserve cut the target on a key short-term interest rate by half of a percentage point to 4.75 per cent. 

The statement showed concern about the potential impact on growth of tightening credit conditions, the disruption in financial markets and the ongoing housing correction.

The inflow which had continued strongly over the period from September 18 till October 16, received a set-back after SEBI proposed a curb on unidentified foreign flows through the Participatory Notes route.

During the period, the FIIs had poured in a whopping Rs 33,845.5 crore (Rs 338.45 billion) despite first two days of negative flows.

After the SEBI draft proposal put out by the market regulator on the night of September 16, the FIIs pulled out nearly Rs 5,000 crore (Rs 50 billion) from the equities market in just five days from October 17 to October 23.

But after things got clear on the SEBI issue, the FIIs jumped in with renewed vigour, they have bought equities worth over Rs 2,594 crore (Rs 25.94 billion) over five days from October 25 to October 29.

"FIIs are driven by well-performing markets and the growth in the Indian markets also appreciating the rupee is helping a larger amount of foreign flow to enter the domestic markets," Kejriwal added.

According to the SEBI data, in October FIIs made net investments of about Rs 20,800 crore (Rs 208 billion) during the month despite the volatility persisting in the domestic market in the period.