Stock market drops by more than 2% due to tariff concerns; investor confidence shaken with uncertain future prospects ahead

Throughout this week, the Indian stock market experienced a significant decline, primarily driven by a combination of factors including FII outflows, concerns over US trade tariffs, and apprehension surrounding key global triggers and domestic macroeconomic data. Both the Sensex and Nifty closed the week with losses exceeding 2.2 per cent, indicating a shift from optimism to caution among investors.

At the onset of the week, positive monsoon forecasts, speculations regarding GST streamlining, and relief stemming from diminishing US bond yields, alongside anticipation of a potential Fed rate adjustment in September, buoyed market sentiment. However, this optimistic momentum was short-lived as the focus shifted towards the impending US tariff decision, leading to a downward trend over three consecutive sessions. Notable exits were observed in sectors such as metals, IT, real estate, and automobile stocks, registering declines ranging from 0.5 per cent to 1.5 per cent.

Large-cap stocks experienced declines, while mid- and small-cap equities faced more significant losses due to elevated uncertainties and stretched valuations. Vinod Nair, Head of Research at Geojit Investments Limited, highlighted the impact of the US tariffs on investor confidence and pointed out potential challenges for sectors like textiles, equipment manufacturing, metals, autos, and seafood. Additionally, indirect pressures on the IT and Pharma sectors were anticipated due to sentiment shifts.

The broader market indices, including the Nifty Midcap 100 and Nifty Smallcap 100, followed suit in the downward trend. Defensive sectors like FMCG, Consumer Durables, Capital Goods, and Media managed to post modest gains, ranging from 0.4 per cent to 1 per cent, as investors sought more stable options amidst the volatility.

Despite the prevailing mixed signals, India’s economy showcased resilience with a robust 7.8 per cent real GDP growth during the April–June 2025 quarter, largely driven by public expenditure and ongoing reforms. While concerns regarding fiscal health persist, this positive growth trajectory could provide short-term support. Nair advised investors to closely monitor upcoming macroeconomic data both domestically and in the US, including PMI figures, jobless claims, payrolls, and unemployment rates, to gain insights into future market trends.

Looking ahead, market experts anticipate a varied trend with stock-specific actions likely to be influenced by factors such as GST adjustments, government spending patterns, and festive season demands. Sectors including FMCG, Cement, Infrastructure, and Consumer Durables are projected to benefit in the near term. Bajaj Broking research suggested that the Nifty has support within the 24,400–24,350 range, and consolidation could occur if the index remains above this level. They further indicated the possibility of consolidation within the range of 24,400–24,900 if the index maintains its position above the designated support levels.