Indian equity markets displayed a mixed performance in August 2025, recovering in the last two weeks after six consecutive weeks of declines. The rebound has been driven by multiple tailwinds, including proposed GST reforms, S&P Global’s upgrade of India’s rating, and easing geopolitical tensions.
The positive sentiment was further reinforced by July’s CPI inflation easing to 1.55 per cent, the lowest in eight years. The Reserve Bank of India (RBI) maintained the repo rate at 5.50 per cent. It lowered its FY26 inflation forecast to 3.1 per cent, while maintaining GDP growth projections at 6.5 per cent, suggesting a supportive macroeconomic backdrop despite lingering volatility.
On the geopolitical front, optimism is emerging as Russian President Vladimir Putin and Ukrainian President Volodymyr Zelensky are scheduled to hold direct talks to end the ongoing conflict between their countries.
Market Headwinds Remain
Despite the positive momentum, challenges continue to affect the domestic market. Foreign Institutional Investors (FIIs) have withdrawn ₹15,951 crore in August, bringing year-to-date outflows to ₹1.13 lakh crore. Additionally, the imposition of 25 per cent US tariffs effective from August 8, with another 25 per cent due on August 27, threatens key export-driven sectors.
While consumption-facing industries such as FMCG, retail, and private banks continue to deliver steady earnings supported by strong domestic demand and limited global exposure, export-heavy sectors, including auto components, textiles, and electronics, face competitive disadvantages due to the tariffs.
“There is no scope for a sustained rally since the August 27th deadline for the 25 per cent secondary tariff on India is fast approaching, and the news coming from the Trump administration is not positive,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
Investor Strategies Amid Volatility — Bet on Large-caps
As Indian equity markets face a mix of macroeconomic and geopolitical uncertainties, market experts have outlined strategies for investors to navigate potential volatility while capturing growth opportunities. With valuations stretched and selective opportunities emerging, experts advise focusing on capital preservation.
Given the current market environment of a short-term rally and expected near-term volatility, portfolio positioning holds the utmost key.
Anirudh Garg, Partner and Fund Manager at INVasset PMS, highlighted that the India–US trade overhang has created selective value pockets. He explained that sectors driven purely by domestic growth—such as consumer discretionary, manufacturing, and financial services—offer compelling accumulation opportunities, particularly within quality mid- and small-caps.
Garg added that portfolios should lean towards large-caps for stability, complemented by selective mid and small-caps to capture higher growth potential, while maintaining a tactical liquidity buffer for volatility-led entries, stressing a balanced approach between safety and growth.
Echoing a similar sentiment, Trivesh D, COO of Tradejini, emphasised the importance of focusing on large-cap stocks amid current market conditions. He noted that with valuations already looking stretched and limited value opportunities, investors should focus on capital preservation over aggressive growth bets. “Large-cap stocks with stable earnings and strong fundamentals carry a lower risk of steep declines,” Trivesh D said, highlighting the need for caution in high-risk segments.
Portfolio Mix — Which sectors or segments should you invest in?
Om Ghawalkar, Market Analyst at Share.Market, recommended a layered approach: Focusing on core holdings in large-cap domestic consumption names, quality FMCG stocks, and leading private banks, as recent corrections provide attractive entry points. He also suggested defensive plays in IT services and pharmaceuticals, relatively insulated from tariff risks, and selective cyclicals in infrastructure and capital goods benefiting from government capex, excluding firms with high US exposure.
Core Holdings: Large-cap domestic consumption names, quality FMCG stocks, and leading private banks, with corrections offering good entry points.
Defensive Plays: IT services and pharmaceuticals, which are relatively insulated from tariff risks and now present better risk-reward after price pullbacks.
Selective Cyclicals: Infrastructure and capital goods firms benefiting from government capital expenditure, excluding companies with significant exposure to US markets.
Disclaimer: 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.
