Trump tariff, RBI policy, FII selloff among 5 factors to impact stock market this week – News Air Insight

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The domestic stock market is set to enter a pivotal week after notching their worst five-week run since 2023, as a confluence of global and domestic pressures, from fresh U.S. tariffs and a surging dollar to relentless foreign outflows and weak corporate earnings, weigh on investor sentiment. Market participants will be closely watching the Reserve Bank of India’s policy decision, as well as diplomatic manoeuvring around India’s trade ties with the U.S., for cues on direction.

The Nifty 50 dropped 0.82% to 24,565.35 and the Sensex declined 0.72% to 80,599.91 on Friday, capping a 1.1% weekly loss. It marked the fifth straight week of declines, the longest losing streak for both indices in two years.

Here are five key factors likely to influence market movements this week:

1. RBI policy

The Reserve Bank of India’s Monetary Policy Committee meets from August 4 to 6, with mounting expectations of a 25 basis points rate cut. A report by the State Bank of India said that a frontloaded cut in August could bring an “early Diwali” by boosting credit growth, especially as the FY26 festive season is frontloaded.Ajit Mishra, SVP, Research at Religare Broking, said, “At the domestic level, all eyes will be on the Reserve Bank of India’s monetary policy meeting on August 8,” noting that “the central bank’s commentary on inflation, liquidity, and growth outlook will be keenly watched. A dovish tilt could offer support to rate-sensitive sectors.”

2. Dollar strength

The dollar index surged 2.5% last week to cross the 100 mark, reaching a two-month high and registering its strongest weekly gain in nearly three years. The greenback’s rally has intensified foreign investor outflows and pushed up the cost of foreign currency borrowing.

The sharp appreciation in the dollar has added pressure on emerging market assets, including India, exacerbating concerns around capital flight.

3. Trump’s tariff salvo

Investor confidence took a hit after U.S. President Donald Trump signed an executive order imposing a 25% tariff on Indian goods, sharper than anticipated, and reaffirmed penalties on nearly 70 countries. While India avoided additional sanctions related to its Russian defence and energy ties, the broader move heightened fears over protectionism and its fallout on global trade.

India, for its part, is expected to continue oil imports from Russia. “These are long-term oil contracts,” a government official told Reuters. “It is not so simple to just stop buying overnight.” Another official confirmed to Reuters that India would maintain its energy engagements with Moscow despite U.S. threats.

Trump last month warned on Truth Social of “additional penalties” over India’s Russian deals.

Markets will be closely tracking diplomatic developments around the proposed U.S.-India trade deal this week. Ajit Mishra noted that “policymakers are expected to respond diplomatically ahead of the next scheduled discussions.”

4. FII outflows and rising short bets

Foreign Institutional Investors have remained persistent sellers, pulling out over Rs 27,000 crore across the past nine trading sessions. On Thursday alone, FIIs net sold equities worth Rs 5,588.91 crore.

The pullback coincides with record bearish positioning. Short interest in index futures has surged to 90%, the highest since March 2023, while the long-to-short ratio has slipped to just 0.11 in the August series. Nifty rollovers also dropped to 75.71% in July, down from 79.53% in June.

“The market oscillated between cautious optimism and defensive positioning, ultimately ending lower due to a persistent FII outflow,” said Vinod Nair, Head of Research at Geojit Investments. “With global headwinds, investors showed a preference for domestically driven stories with non-discretionary appeal, as broader sentiment turned selective.”

“Going forward, investors will closely monitor the upcoming RBI rate decision next week, while the risks remain tilted to the downside,” Nair added. “A stable inflation outlook, potential progress in trade talks, and selective strength in domestic sectors are anticipated to lay the groundwork for a recovery.”

5. Q1 earnings disappoint

The first-quarter earnings season has offered little cheer, with several major stocks reacting negatively to results. The Nifty IT index has slumped 10% in the past month, while Nifty Bank has remained broadly flat.

According to an Economic Times report, India’s top nine private sector banks posted just 2.7% year-on-year profit growth in Q1, underlining tepid credit demand and the broader impact of muted economic activity.

“Domestic equity market navigated a volatile week marked by heightened uncertainty surrounding trade negotiations and subdued earnings,” said Nair of Geojit Investments.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)



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