Volatility at the Forefront, Decoupling Trends and Tariff Troubles
Performance recaps last month and current month
The Indian stock market has witnessed volatility with downtrend in last 2 months and traded throughout within range of 1200 points for nifty between 24300 and 25700 touching lower and upper end few times with closing at lower end. Nifty was down -2.9% in Jul with nifty closing at 24768 and Sensex closing at 81186. This month nifty witnessed high volatility and nifty closed -1.4% down with nifty at 24426 and Sensex at 79809. In the last week market sentiments turned negative and have been in downtrend primarily on Trump tariff imposition and FII selling. There were few positive factors as well like huge DII buying, GST reforms, softening of crude oil prices. FII sold for 47666 crores in July and around 39000 cores in current month whereas DII bought for 60900 crores in Jul and 83300 cores in current month. Indian market has underperformed despite global markets rally including US markets near life time high. Various Factors and uncertainties impacting market sentiments are the US tariff policy matter, higher valuations in pockets, mixed corporate earnings and geo political risks.
Key event highlight – India Faces 50% US Tariffs, trade impact and Government Strategy
Tariffs & Their Impact
- The U.S. has raised tariffs on Indian goods up to 50%, combining an initial 25% “reciprocal” tariff with an additional 25% penalty related to India’s continued purchase of Russian oil. The timeline of these impositions has been from 30th July to 27th Aug ’25 gradually.
- These tariffs cover more than half of India’s exports to the U.S., including textiles, gems & jewellery, leather, chemicals, footwear, and furniture—mainly labour-intensive industries.
- The impact is estimated at $48–50 billion worth of exports, with India’s GDP growth expected to be trimmed by nearly 1 percentage point.
- Sectors like textiles, garments, and small-scale manufacturers are likely to feel the sharpest hit.
Indian Government’s Response
- Export Diversification: India is pushing exporters toward alternate markets through Free Trade Agreements (FTAs) with the UK, Japan, UAE, Australia, and others.
- Financial Relief: Measures include GST rate cuts, easier loans, and liquidity support to help affected exporters.
- Agricultural Support: The government has extended an 11% cotton import duty exemption till December 2025 to reduce costs for textile manufacturers.
- Diplomatic Strategy: India is strengthening partnerships with countries like China, Japan, and BRICS members while continuing trade dialogue with the U.S. to ease tensions.
Way forward
The tariff hike is a major challenge for India’s exports and growth, particularly in job-heavy industries. However, India is countering it through diversification of export markets, financial aid to exporters, and strategic diplomatic realignments to reduce dependence on the U.S.
Sectoral performance
Majority of the sectors witnessed volatility and downtrend in line with the market. Sectors which underperformed the most in Jul month are IT -9%, Realty -7%, PSU -5% with smallcap fall of -4% and midcap -3%. Sectors which outperformed last month were FMCG +2% and Auto -1%. Laggards of current month are Pharma -5%, Energy -4%, and Realty -3%% with smallcap fall of -3% and midcap fall of -2%.. Out performing sectors this month are Auto 6% and IT 1%. Broadly sectors valuations fluctuates In short term and hence Investors can take advantage of corrections to add quality stocks of these sectors and do profit booking in overvalued stocks and sectors. Diversification across sectors adds stability and is also important from risk management perspective.
Global Market outlook including commodity
The U.S. economy grew at an annual rate of 3.3% in the second quarter, more than the 3% growth initially reported last month. The uptick signalled that the economy is holding up better than previously thought against the headwinds of President Donald Trump’s tariffs and the Federal Reserve’s high interest rates. The improvement in the GDP relieves some of the pressure on the Fed to cut interest rates to boost the economy and job growth. JACKSON HOLE, Wyoming, Aug 22 (Reuters) – Federal Reserve Chair Jerome Powell on Friday signalled a possible interest rate cut at the U.S. central bank’s meeting next month, saying that risks to the job market were rising but also noting inflation remained a threat and that a decision wasn’t set in stone. US and global markets have rallied further on expectation of rate cuts and steady economic growth. However, there are still global uncertainties and risks like unemployment, lingering inflation, uncertain policy environments, tariff trade war, geo political events. Hence, the volatility may continue despite resilience shown by the markets amidst valuation concerns. Gold & Silver have performed exceedingly well concerning this challenges and holding gains despite minor corrections in between. Adding them in portfolio is part of diversification and risk management technique. Gold is currently trading at Rs 104k/ 10 gm and Silver at Rs 120k/ 1kg.
Outlook for the Indian Market
Indian market has underperformed most other markets and broader corrections offer opportunity to Investors to add quality stocks in the portfolio. Learnings from many past global events, uncertainties, policies suggest that these have short term impact and disciplined and systematic investing rewards Investors in medium to long term. The outlook remains positive with volatility for near term. Global market, events and policies will further drive the market. Further, consult your investment advisor for prudent financial practices.
Fundamental outlook: Indian market witnessed high volatility since a year starting from September last year and Nifty is just 7% away from all time high of 26277. Huge FII selling in past few months have been compensated strongly with DII inflows, thanks to regular SIPs investment from retail Investors. Increasing numbers of mainboard and SME IPOs shows strength and stability in the market. In current month alone 17 mainboard IPOs and 29 SME IPOs got listed. Low VIX environment indicates stability to mild uptrend. With festive season around, market sentiment may improve further and market may try to reclaim lifetime high this year. However we need to track global market events and policies announcements.
Technical outlook: Indian market is showing consolidation at lower level and may stabilize around these levels based on technical parameters. Nifty is trading currently below key moving averages. Nifty is trading at monthly RSI of 60 and weekly RSI of 50 which indicates neutral to mild uptrend. Nifty immediate support is seen at 24150 and major resistance at 25650.
