Dear Investors,
High tariffs (50%) on Indian exports to the United States dragged the market down. The Nifty closed August 2025 well below the psychologically important 25,000 level at 24,427 (down 1.4% month on month). The Sensex closed August 2025 below the psychologically important 80,000 level at 79,810 (down 1.7% month on month). The broader market underperformed versus the Nifty. FII selling accelerated in August with net FII sales of nearly Rs 35,000 crores. Mutual funds continued to support the market with around Rs 55,400 crores of net purchases. Most industry sectors were in red in the month of August, with Telecom, Healthcare, Infrastructure, Oil & Gas, Financial Services and Power among the worst hits. However, consumer durables, consumer discretionary and automobiles were in the green giving positive returns in August.
As far as global markets are concerned, S&P 500 rose by 2.2%. The developed markets (e.g. Nikkei, DAX, CAC, FTSE) were in the green in August. Hang Seng rose by 1.4%. India underperformed in the EM basket primarily driven by FII concerns about earnings risk in Indian equity due to tariffs.
The biggest risk factor for Indian equities is the impact of tariffs on revenues and profits (earnings) of companies in sectors which are affected by the tariffs. Tariff rate on Indian exports to the US is the highest among all Asian economies. High tariffs are likely to make Indian exports uncompetitive and lead to revenue erosion. Secondary impact of the tariffs will be on exchange rate of the INR if exports fall significantly. India has to adjust to the evolving geopolitical dynamics based on realpolitik consideration. The Government is working on building bilateral and multilateral trade ties to reduce the dependence on United States which has been India's biggest import partner. The evolving geopolitics may pose challenges and also open up new opportunities for India.
Bond yields spiked with the 10-year G-Sec yield rising 21 bps due to rising fiscal risks, higher state borrowings and falling currency. The 1-year bond yield has also firmed up by 1 bps. The imposition of 50% tariffs on Indian exports to the United States has raised economic risks in a number of sectors like textiles, gems and jewellery, chemicals etc. The RBI has to do a complicated balancing act of boosting economic growth while stabilizing the INR since lower interest rate and falling INR may make Indian Government Bonds less attractive for foreign investors. The Prime Minister in his Independent Day speech announced proposal to rationalize the GST structure. While this may lead to consumption demand increasing, it has raised fiscal concerns since lower GST collections may result in widening fiscal deficit which have an impact on bond yields.
Precious metals continued to rise in August 2025 with Gold and Silver prices rising 3.4% and 3.7%, respectively. Gold prices crossed Rs 1 lakh per 10-gram mark. Precious metal prices may rise further due to global trade uncertainties along with, demand in the upcoming festive and wedding season over the next few months. Crude prices declined by USD 5 per barrel due weakening global demand.
The correction in the market has resulted in valuations coming down significantly from their peaks and also long-term historical average. However, valuations appear frothy in some pockets, especially in light of weaker than expected earnings growth. The market has been resilient and we have not seen a big meltdown after the imposition of the tariffs. India's Q1 GDP growth at 7.8% surprised investors on the positive side and has provided support to equity market. The upcoming festive season may boost demand and along with proposed much needed GST rationalization by Diwali may provide tailwind to Indian equities. Overall situation for financial market is uncertain. We may see continued volatility in the coming weeks and months Investors should have long investment horizon and continue to invest in a disciplined way with focus on asset allocation and quality.
Assuring you of our best services.
Best Wishes,
Ajoy Agarwal,
(Managing Director)
Login
