Markets Brace for Turbulence: US-India Trade Tensions & RBI Policy Decision Loom Large
Tensions flare as US-India trade disputes rattle global markets—just as the RBI prepares to drop its next policy bomb. Investors clutch their pearls.
Will the central bank play hero or villain this time? Everyone’s betting on dovish whispers, but inflation’s still the party crasher nobody invited.
Meanwhile, Wall Street analysts pretend to 'monitor the situation' while secretly eyeing their yachts. Priorities.
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At the domestic level, all eyes will be on the Reserve Bank of India’s monetary policy meeting on August 8, where the central bank’s commentary on inflation, liquidity, and the growth outlook will be closely watched. A dovish tilt could provide support to rate-sensitive sectors,” he added.
Gift Nifty at 24,600 signals a flattish opening with downward bias.
The market tone remained stable in the initial sessions last week, supported by mixed corporate earnings. However, volatility spiked in the latter half of the week following the surprise tariff announcement by the U.S. President targeting Indian exports, which caught market participants off guard and triggered a risk-off sentiment, said Mishra. “This development not only reignited fears of a potential trade standoff but also raised concerns over its impact on India’s export-dependent sectors. The announcement came at a time when markets were already grappling with hawkish central bank commentary, sustained foreign fund outflows, and a relatively underwhelming earnings season,” he added. Additionally, concerns over uneven monsoon distribution and its implications for rural consumption further weighed on investor sentiment, he said.
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According to SBI Research, “we expect RBI to continue frontloading with a 25 bps cut in August policy.” No point in committing a Type 2 error today by not cutting rates in August as inflation will continue to remain rangebound even in FY27...A Type II error occurs when the central bank fails to reject the null hypothesis, assuming that the inflation undershoot is temporary, and hence does not cut rates — but in reality, inflation remains persistently low and output gap continues to weaken, it said.
Meanwhile, foreign portfolio investors resorted to heavy selling in July.
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd, said FPIs turned big sellers in the Indian market in July. “They sold equity worth Rs 31988 crores through the exchanges in July. This selling takes the total sell figure for 2025 up to August 1 to Rs 131876 crores. However, the FPI strategy of buying through the primary market continued in July also with a monthly buy figure of Rs 14247 crores. This takes the total investment of FPIs through the primary market for 2025 to Rs 36235 crores. ( NSDL) This is a steady trend reflecting the FPI preference for fair valuations.,” he added.
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President Trump’s tariff tantrums imposing a 25 per cent tariff on Indian goods and an unspecified penalty for trade in energy and defence goods with Russia was unexpected and therefore have impacted market sentiments in the short-term, Vijayakumar said, adding that the sharp appreciation in the dollar index to 100 is another negative which can impact FPI inflows in the near-term. Market perception is that, after the initial chaos, a deal between India and the U.S. will follow the next round of negotiations. A steady trend of FPI flows will emerge after the dust settles, analysts said.
Meanwhile, Asian stocks are mixed, with Japan’s main benchmarks slumping over 2 per cent, even as Korean and Australian markers are stable and trading in the green following an earlier deal on Monday.
Published on August 4, 2025
