Indian stock market: Benchmark indices paused for breath in July after a stellar multi-month rally, as disappointing corporate earnings and persistent foreign outflows weighed on sentiment. Investor caution was further heightened by uncertainty around a potential trade deal, which ultimately failed to meet expectations.
US President Donald Trump threw a curveball in the form of a 25% tariff on imports, along with a warning of unspecified penalties for energy and defence-related purchases from Russia. This promoted worries that August, which is generally a positive month for the Indian stock market, may see tempered gains as global headwinds and cautious investor sentiment persist.
Nifty 50 Trend in August
Historically, July and August are among the most seasonally positive months for Indian equities. The Nifty 50 index has shown a positive trend during the month of August, delivering gains in six out of the past 10 years, according to data from JM Financial, with a median return of 1.4%.
While markets bucked the trend in July, declining 1.7% so far (till July 30), analysts believe that while August may be characterised by volatility, it is likely to exhibit a positive trend.
Harshal Dasani, Business Head, INVasset PMS, said that August could present a turnaround. With the ambiguity around the US–India trade stance gradually resolving — even if via an adverse outcome like tariff escalation — the market may begin to stabilise, Dasani said, adding that historically, equities consolidate when the “event risk” transitions into known outcomes.
Ashish Chaturmohta, Managing Director & Fund Manager, Apex PMS, JM Financial, also opined that despite some weakness in July 2025, primarily due to a softer outlook from the IT sector and elevated provisioning in the BFSI segment, the outlook for August remains constructive. His optimism is supported by above-average monsoon rainfall and improved reservoir levels, which are expected to boost rural demand and support agriculture, and a decent earnings season.
“External environment, particularly the US tariff on Indian exports, remains the key monitorable and could influence market sentiments. Overall, the market sentiment for August 2025 appears positive and aligned with historical averages,” said Chaturmohta.
While analysts foresee an impact of Trump’s tariff threat on export-heavy sectors, barring a full-blown trade war, they see limited downside.
Emkay Global, in a note today, said that although trade talks appear to have stalled, we believe this saga is far from over. “Beyond pure economics, such negotiations carry significant geopolitical weight. Despite a potential shift in the balance of negotiation power, we believe both sides are still likely to push for a deal soon,” it said.
India’s exports to the US are only 2% of GDP, with much lower value-added embedded in them. According to Emkay’s estimates, previous static analysis suggests that India’s US exports could drop by $30-33 bn (0.8-0.9% of GDP) at 25%+ tariffs, not adjusting for the complexity of dynamic cross-country hits/responses. While the announcement adds some downside tail risk, it is too early to consider actual forecast changes, it added.
“In fact, with the rupee stabilising near ₹87.5 and Brent crude easing below $73, key macro stressors seem priced in. The geopolitical risk premium is also no longer expanding. Given that the uncertainty has peaked, and past Augusts tend to favour bulls, we could now see a shift from risk-off to recalibration mode—especially if global yields cool,” Dasani added.
How should investors position themselves?
As the market is expected to be volatile amid event-driven swings, Khushi Mistry, Research Analyst at Bonanza, advised adopting a cautious and selective approach.
“It is prudent to emphasise quality large-cap companies with strong balance sheets and steady domestic demand exposure, such as financials and consumption sectors, rather than chasing risky small and midcap stocks.”
Gradual accumulation on market dips can capture value while maintaining discipline, Mistry recommended.
Jashan Arora, Director at Master Trust Group, also advised investors to stay selectively invested, focusing on quality large-caps and sectors like banking, capital goods, and auto. “Caution is advised in small caps. A staggered approach to investing may help navigate any near-term volatility.”
Major drivers for August could include global interest rate signals, crude oil prices, domestic inflation and GDP data, and any geopolitical developments, along with FII stance, added Arora.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.