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Informist, Monday, Aug. 4, 2025

 

By Anshul Choudhary

 

MUMBAI - The Nifty 50 is likely to move in a wide range in August as market participants try to find a balance between the immediate threat of higher than anticipated tariffs by the US, hope of a trade deal with the country, and better domestic growth in the second half of the financial year. Projections by technical analysts show the Nifty 50 may see sharp movements on either side in a range of over 1,000 points.

 

On Friday, the US imposed 25% tariff on goods imported from India, which are set to come into effect from Aug. 7. This was higher than the 15-20% tariffs expected.

 

Economists' estimates show India's GDP growth in FY26 may see a negative impact of 20-40 basis points if the 25% tariff continues. The Reserve Bank of India expects GDP growth in FY26 at 6.5%. Tariffs are likely to directly affect earnings growth of exporters in sectors such as automobile parts, textile, and engineering goods, Systematix Shares and Stocks said in a report Thursday.

 

The risk of tariffs hitting growth may push investors to sell stocks, analysts said. Estimates show the Nifty 50 may come close to breaching the 24000 level this month, according to the median of support levels given by 12 brokerages. This indicates a fall of 3% from Monday's close of 24722.75 points.

 

"Sentiment is not good right now...corporate results for June-ending quarter so far are significantly below expectations," Alok Ranjan, senior fund manager at ITI Mutual Fund, said. "Our nominal GDP growth roughly has come down to 8.5%. In the last 20-30 years, it has happened only few times and whenever it happened, we saw corporate earnings growth slowing down."

 

Initial reactions to the US's 25% tariff were extremely negative, with one head of research saying the market may see new lows in the near term. The earnings growth of exporters is also expected to take a hit from tariffs at a time when companies are struggling for growth amid weak domestic demand. "I don't see earnings growth improving significantly for one-two quarters," Pravin Bokade, head of research at IDBI Capital Markets & Securities, said.

 

Having said that, market participants remain hopeful that India and the US will manage to sign a trade deal that will bring tariffs down from 25%. The Nifty 50 has already fallen over 4% from this year's high and any positive news on a trade deal may push investors to buy equities. According to the median of estimates, the index is expected to face resistance at 25300 points, implying gains of over 2% from Monday's close.

 

TARIFF IMPACT

While the direct impact of tariffs is seen limited to exporters, analysts warn India may see an indirect impact as tariffs may erase India's competitive advantage and hit capital expenditure plans of private companies.

 

India's competitors such as Bangladesh, Vietnam, and Indonesia have managed to secure lower US tariffs of 19-20%, which has taken away the possibility of competitive advantage to India from a trade deal with the US. "With Vietnam's tariffs set at 20%, India's tariffs of 25% or even a 15% tariff (in the best-case scenario), may not lead to any major trade diversion opportunities in the near term," Nomura said in a report Friday.

 

Threats from tariffs, along with a slowdown in earnings growth and high stock valuations, have already pushed foreign portfolio investors to sell stocks. Foreign investors sold Indian equities worth INR 177.41 billion in July ahead of the Aug. 1 deadline set by Trump, according to data from the National Securities Depository. The Indian market is unlikely to find support from foreign investors until valuations or earnings improve, analysts said.

 

Pharmaceutical companies are at a major risk from US tariffs as they earn a significant part of their revenue from the US. Currently, pharmaceutical products are exempted from tariffs, but these products are under investigation and the US may soon announce tariffs against the sector. Trump had threatened in July to impose 200% tariffs on pharmaceutical imports if companies don't start manufacturing in the US.

EARNINGS HOPE

Several analysts have downplayed the risk due to tariffs as only a small part of India's economy is dependent on exports to the US. "India's exports to the US are only 2% of GDP, with much lower value-add embedded in them," Emkay Global Financial Services said in a report Thursday.

 

Analysts pointed out that major export segments such as pharmaceutical and electronics are exempted from the 25% tariff, which would mean the impact of tariffs will be limited. Information technology services are also not under tariffs and companies in the sector are expected to benefit once demand from US clients improves after the tariff threat eases.

 

Quoting anonymous officials, several media reports said the impact of tariffs would be on $40 billion worth of exports--nearly half the $86.51 billion exports to the US in 2024-25 (Apr-Mar). "The tariff will have little impact on India's 2HFY26E (Oct-Mar) earnings recovery trajectory, as high-weightage sectors such as financials, consumption, and technology are unaffected," Emkay Global said.

 

Analysts are hopeful that interest rate cuts announced by the Reserve Bank of India, along with a good monsoon, and tax relief announced in the Budget, will aid credit growth and overall rise in consumption later this year. The Reserve Bank of India has already cut its repo rate by 100 bps from the peak this year to 5.50%. In its last meeting in June, the central bank even surprised market participants with a 50 bps cut and a 100 bps phased reduction in the cash reserve ratio for banks.

 

"The positive effect of rate cut typically comes with a lag on economic parameters...maybe three to six months from now, maybe September, October onwards, we will see credit offtake and growth picking up," Ranjan of ITI MF said.

 

Apart from this, higher capital expenditure from the government is also likely to support earnings this year, unlike last year, when capex slowed down due to elections impacting earnings growth of companies. During the June quarter, the government spent over INR 2.75 trillion on capex, which is 52% higher than what it spent during the same period last year, according to data from the Controller General of Accounts.

 

Strong domestic flows are another factor that is likely to support gains or limit the fall in the market, analysts said. Some analysts acknowledged that they don't expect a steep fall in the market solely because of high domestic flows. "It is a liquidity-driven market," said the head of research at a domestic brokerage.

 

Equity mutual funds continue to see net flows into India with open-ended funds' assets under management rising to INR 33.47 trillion as on Jun. 30, up nearly 21% on year, data from the Association of Mutual Funds in India showed.

 

Following are the support and resistance levels for the Nifty 50 index for August based on responses from 12 brokerages:

 

BROKERAGE	Support 1	Support 2	Resistance 1	Resistance 2
Anand Rathi Shares and Stock Brokers	24000	-	25300	-
Axis Securities	24350	23950	24950	25350
Cholamandalam Securities	23800	-	25300	-
Emkay Global Financial Services	24250		24700	24900
Globe Capital Market	24200	24000	25250	25350
HDFC Securities	24300	-	25100	-
IDBI Capital Markets & Securities	24500	24000	26000	-
Kotak Securities	24450	24150	25000	25650
Lakshmishree Investment and Securities	24400	24200	24980	25255
NVS Brokerage	24477	-	24900	-
Religare Broking	23900	-	26100	-
StoxBox	24400	-	25200	-

 

End

 

Edited by Avishek Dutta

 

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