Rs3 Trillion Erosion In Market Capitalization

Tariff Shock Disrupted Market Calm; Nifty ends 86 points lower while the Sensex was down by 296 points.

Shrikant Chouhan, 

Head Equity Research, 

Kotak Securities

Mumbai, July 31, 2025: Today, the benchmark indices witnessed a volatile trading session from the lower levels, the Nifty ends 86 points lower while the Sensex was down by 296 points. Among Sectors, FMCG Index outperformed, rallied 1.4 percent whereas Oil and Gas, Capital market and Pharma indices shed over 1 percent. Technically, after a gap down open one more time market took the support near 24600/80600 and bounced back sharply. From the day lowest point market rallied over 300 points. However, it failed to close above 24900/81600 levels. Nevertheless, on intraday charts it has formed higher bottom formation which is largely positive.

For the day traders now, 24650/80800 and 24600/80600 would act as a key support zones. As long as market is trading above the same, the pullback formation is likely to continue. On the higher side market could move up to 25000/81900 and 25050/82200. On the other side, below 24600/80600 the sentiment could change. Below the same, traders may prefer to exit out from the trading long positions.

Gaurav Garg, Lemonn Markets Desk, adds: Indian equity markets endured a volatile July 2025 as a surprise tariff announcement from U.S. President Donald Trump triggered a sharp sell-off in the final trading sessions. Despite the late-month turbulence, the Nifty 50 managed to close nearly flat, reflecting underlying resilience supported by strong domestic flows, even as global and macroeconomic headwinds intensified.

Tariff Surprise Disrupts Market Calm

On July 30, Trump announced a 25% tariff on all Indian imports, citing India’s “world’s highest tariffs” and continued energy ties with Russia. The announcement, made via Truth Social, sent shockwaves across Dalal Street, causing a Rs3 lakh crore erosion in market capitalization and a steep intraday fall of over 500 points on the Sensex.

• Nifty 50: Gained just 9.9 points (+0.04%) to close at 24,864.95, resilient despite the shock.
  
  
• BSE Sensex: Declined 2.65% for the month to end at 81,482, highlighting large-cap vulnerability.
  
  
• Market Breadth: On July 28, 2,211 stocks declined while only 811 advanced, showing broad-based selling.
  
  

Global Headwinds Mount

Alongside trade tensions, emerging market sentiment weakened further after the U.S. Federal Reserve held interest rates steady at 4.25–4.50%, but with hawkish commentary. The move triggered foreign fund outflows and currency depreciation.

• Rupee: Depreciated 2.46% in July to close at ₹87.69/USD, nearing its all-time low.
  
  
• FII Outflows: Totalled ₹550.31 billion year-to-date, with heavy selling in the last week (₹69.4 billion).
  
  
• India VIX: Rose 6.98% to 12.06 by month-end, indicating elevated but contained market anxiety.

Domestic Investors Anchor Market Stability

A key positive amid global pressures was the unwavering confidence of domestic investors. Systematic Investment Plans (SIPs) hit an all-time high, helping counterbalance the foreign exit.

• SIP Inflows: Reached a record ₹23,332 crore, up from ₹21,262 crore in June.
  
  
• Total Mutual Fund Equity Inflows: ₹37,113 crore, providing critical market support.
  
  
• Primary Market: FIIs remained active in IPOs, investing ₹80.38 billion, even as they exited secondary holdings. 
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• Sectoral Performance Reflects Defensive Rotation

Sectoral trends in July displayed clear defensive preferences, with investors shifting focus toward domestic consumption and monsoon-linked themes amid rising uncertainty.

• Auto: Gained 1.50%, led by strong rural demand and Mahindra’s 22% YoY sales growth.
  
  
• Banking: Rose 0.43%, supported by healthy credit growth and record UPI volumes.
  
  
• FMCG: Gained 0.72%, buoyed by favorable monsoon and rural revival hopes.
  
  
• IT Sector: Underperformed despite decent results from TCS and Infosys, amid structural shifts due to automation and cost-cutting.
  
  
• Pharma: Volatile due to U.S. pricing pressures and export exposure; U.S. accounts for 31–35% of Indian pharma exports.
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• High-Risk Sectors Identified Post-Tariffs

Trump’s tariff move poses a direct threat to key export-heavy Indian sectors:

• Pharmaceuticals: $8.7–10.9 billion U.S. exposure.
  
  
• Textiles & Apparel: $10.8 billion, representing 28.5% of total textile exports.
  
  
• Gems & Jewelry: $8.5 billion, with 30% U.S. market share.
  
  
• Electronics: Including Apple iPhones assembled in India (worth $24.1 billion), face severe competitiveness risks.
  
  

Oil and Currency Complications

The tariff blow was compounded by potential U.S. sanctions on Russian oil, which could further disrupt India’s energy imports. India currently imports 2.1 million barrels per day from Russia (35% of total crude intake), raising concerns of supply shock and inflation.

• Brent Crude: Rose 8.16% in July to $72.59/barrel, adding to import bills.
  
  
• Gold: Jumped to $3,310/oz, driving haven demand and further widening India’s trade deficit.

Global Divergence & India’s Relative Underperformance

While global markets surged—S&P 500 up 4.96% in June—India lagged due to heightened geopolitical risk and elevated valuations. The MSCI India Index underperformed the broader MSCI Asia Pacific Index by about 7 percentage points.

Looking Ahead: Balancing Risks with Domestic Strength

The near-term outlook depends heavily on the outcome of India-U.S. bilateral trade talks scheduled for August. Analysts estimate a potential GDP hit of 0.8–0.9% if the full tariff impact materializes.

However, there are domestic positives:

• Strong Monsoon: At 105% of Long Period Average, expected to boost rural consumption.
  
  
• Government Spending: ₹1 lakh crore Urban Challenge Fund to drive infrastructure.
  
  
• Policy Challenges: RBI may be forced to delay the anticipated 75 bps rate cuts to defend the rupee.
  
  

Conclusion

July 2025 reinforced India’s growing integration with global markets, making it more sensitive to geopolitical developments and foreign investor sentiment. Yet, the sustained strength of domestic institutional flows, favorable structural trends, and robust consumption base provide a counterweight to global turbulence. As the market navigates the trade-policy minefield, investor focus remains on resilience, sector rotation, and policy clarity."