From Tariffs to Trends: Decoding India’s August Market Moves

India’s benchmark equity indices, Nifty and Sensex, slipped for a second consecutive month in August after the US imposed fresh tariffs of 25% on Indian goods. The move, in response to New Delhi’s purchase of Russian oil, raised concerns over economic growth and corporate earnings.

The Nifty 50 extended monthly losses to 1.4%, while the BSE Sensex fell 1.7% over the month. Both indices had already shed around 3% in July. The rupee also weakened sharply, breaching 88 against USD for the first time. Adding to this, foreign ownership of Indian shares fell to a seven-month low of below 16% in August.

Despite this, the market still perceives the tariff-related disruptions as temporary, with optimism hinging on progress in future trade negotiations. However, the lack of strong interaction between Indian and US parties is increasing uncertainty and adding confusion to the market. For retail savers navigating volatility, SIP investment is safe.

Economists warned that the duties could knock 60 to 80 basis points off India’s GDP growth if they remain in place for a year, further pressuring an already slowing economy. However, India reported robust GDP numbers with 7.8% year-on-year growth in April-June quarter.

Sectoral Peers

India’s equity markets witnessed a mixed performance in August, with a sharp divergence across sectors as broader markets and several key sectors faced significant pressure. The Mid-Cap 100 index fell 2.9%, while the Small-Cap 100 slipped 4.1%. Among sectoral losers, public sector enterprises (PSEs) tumbled 5%, while pharma, energy, oil & gas and banking & finance fell more than 4%.

By contrast, auto and consumption indices gained 5.5% and 2.7%, respectively, fuelled by hopes of tax cuts ahead of the Goods and Services Tax (GST) Council meeting. As a result, Hero MotoCorp surged 19.4% and Maruti Suzuki advanced 17.3% in August on expectations of policy support.

FIIs Exodus & DIIs Domination

Foreign institutional investors (FIIs) continued their selling spree in August, taking total sales through exchanges to ₹39,063 crore. With this, cumulative FII outflows in 2025 so far have reached ₹1.71 lakh crore.

This comes on the back of total FII selling worth ₹1.21 lakh crore in 2024. The key driver of this massive selloff is the relatively high valuations in India compared to other markets.

FIIs are reallocating money to cheaper markets, while sudden changes in tariff policies and exchange rates are also weighing on their behaviour.

FIIs are moving money to cheaper markets. Sudden changes in tariff policies and exchange rates are also weighing on FII behaviour.

Domestic institutional investors (DIIs), on the other hand, purchased equities worth ₹5.13 lakh crore in the first eight months of 2025, already equalling 97% of the full-year inflows recorded in 2024 and nearly tripling the ₹1.81 lakh crore inflows of 2023. If the momentum persists, flows could surpass ₹6 lakh crore for the first time by year-end.

Triggers Ahead

Looking ahead, India’s resilience, supported by strong Q1 GDP growth driven by government spending and policy measures, may provide a buffer against external headwinds.  A resolution of tariff disputes could act as a key catalyst for market sentiment, although the reciprocal 25% tariff is expected to remain in place in the near to medium term.

In the interim, markets are likely to display a mixed bias, with consumption-driven and domestic growth-oriented sectors, such as FMCG, Durables, Discretionary, Cement and Infrastructure well-positioned to benefit from GST cuts, firm demand and higher government spending. However, limited progress in trade talks continues to add uncertainty and weigh on investor confidence.

GST Slash: Domestic Reforms Continue

The GST Council will meet on 3^rd and 4^th September 2025 to brainstorm on sweeping changes to India’s indirect tax regime, including the move to a simplified two-slab structure of 5% and 18%.

This structure would eliminate the current 12% and 28% slabs, moving most goods into the proposed 5% and 18% brackets. The change could simplify compliance while improving revenue consistency. However, a steep GST rate of 40% is expected to remain on “sin” goods.

In addition, a panel of state ministers has recommended GST exemption for health and life insurance premiums, a move that could have a meaningful revenue impact.

MINITIT Outlook For August

The Indian economy has experienced a slowdown, with GST collections growing at a modest 6.5%. However, policy measures implemented over the past six to eight months are beginning to take effect, driving a significant resurgence in government spending on both revenue and capital expenditure. The Reserve Bank of India has cumulatively reduced interest rates by nearly 100 basis points, signalling a supportive monetary policy stance. Additionally, cooling inflation is expected to enhance purchasing power, fostering a conducive environment for economic recovery. This backdrop also supports long term SIP investment strategies.

Looking ahead, the implementation of the Eighth Pay Commission next year is anticipated to inject further stimulus, complemented by a ₹1 lakh crore tax break introduced in the recent budget, which is already in effect. With favourable monsoon conditions and stable oil prices, these policy measures set the stage for a robust economic rebound in the second half of 2025. This recovery is expected to positively impact corporate earnings, with fund managers anticipating an earnings inflection point within the next 6–12 months. Consequently, they are strategically building positions in fundamentally strong sectors to generate alpha rather than chasing momentum-driven stocks.

Sector-Specific Insights

Defence Sector

Investor enthusiasm for the defence sector remains high, but valuations warrant caution. For instance, post the India-Pakistan conflict, defence stocks surged by 70-80%, driven largely by narrative rather than earnings growth. While earnings are expected to improve, they are unlikely to justify such sharp price increases in the near term. Investors should therefore focus on fair value assessments to avoid overpaying during hype-driven rallies.

Consumption Sector

The consumption sector continues to demonstrate resilience, maintaining a strong presence even amidst market volatility. We remain optimistic about its long-term potential, expecting it to deliver superior risk-adjusted returns. The sector's stability and growth prospects make it a cornerstone of our investment strategy. This is particularly relevant to SIP investment for beginners who prefer disciplined, incremental investing.

With recent market corrections behind us and small-cap stocks showing signs of recovery, the stage is setting for a healthier, broad-based rally in the long term. However, broader markets may face resistance in the near term. The Nifty's price-to-earnings (PE) ratio is currently discounted by approximately 7.6% compared to September 2024 levels, presenting an attractive entry point for long-term investors.

In summary, a combination of supportive policy measures, improving economic conditions and strategic sector positioning underpins our optimistic outlook for the Indian economy and markets over the long term.

MINTIT, India’s only dedicated Mutual Funds Platform, caters to your personalised goals and accompanies you to achieve your financial milestones. Depending on your profile it precisely suggests tailored investing plans to achieve your goals with the help of trusted financial advisors and enables you to invest in mutual funds online.

Happy Investing!