After delivering three straight months of positive returns in 2025, the Indian market posted a negative performance in July. Now, all eyes are on August. A mix of global and domestic factors will play a key role in determining the market’s direction. This month, key events such as the RBI’s monetary policy review, the release of crucial economic data, and strong quarterly results from select sectors are likely to influence market trends.
August also holds significance as the market gradually transitions into the festive season and the beginning of the second half of FY26.
In this article, we explore some of the major domestic and global factors that may impact or shape the market in August.
US FOMC Meeting
On July 30, the US Federal Reserve kept its key interest rates unchanged for the fifth consecutive time, maintaining them in the range of 4.25% to 4.5%. Despite continued pressure from US President Donald Trump and his administration, the Fed did not signal any rate cuts for September.
The Fed is trying to strike a balance between its two main objectives, maximum employment and stable inflation. In recent weeks, slower growth in the economy and job market has strengthened the possibility of a rate cut. However, inflation has started to rise again due to the tariffs imposed by Trump since June, and experts believe the impact of these measures will become more pronounced in the coming months.
RBI Monetary Policy Meeting
The RBI’s Monetary Policy Committee (MPC) meeting, scheduled for August 5–7, is one of the most crucial events for the Indian market. In June, the RBI had cut rates by 50 basis points, but this time, the likelihood of a rate change appears minimal. According to a Reuters poll, 75% of analysts expect the repo rate to remain unchanged at 5.50%.
Inflation in India is currently under control, and the IMF has revised India’s GDP growth forecast for FY26 upward by 20 basis points to 6.4%. The RBI may maintain a dovish tone in its policy stance, but any further action will be guided by incoming data. If inflation continues to fall, another rate cut could be possible by the end of the year.
US Imposes 25% Tariffs on India
On July 30, US President Trump announced via his social media platform X that, effective August 1, India will face a 25% import tariff on goods exported to the US, along with additional penalties for purchasing oil and military equipment from Russia.
Trump stated that, despite the friendship between India and the US, trade between the two countries has remained limited, and he aims to change that. This move could affect several Indian sectors. Here’s a look at the ones likely to be impacted:
Pharmaceuticals: India’s pharma exports to the US increased from $8.1 billion in FY24 to $9.8 billion in FY25, accounting for 40% of total pharma exports. The new tariffs could place added pressure on the sector.
Textiles: The US accounts for 28% of India’s textile exports. Companies such as Welspun Living and Trident, which export heavily in cotton and readymade garments, may be directly impacted.
Auto Parts: In FY24, India exported $2.2 billion worth of auto components to the US, making up 29.1% of total exports in this segment. Higher tariffs could raise costs and lower demand. However, passenger car exports may remain largely unaffected as they represent just 0.13% of total exports.
Solar Equipment: The US accounted for 97% of India’s total photovoltaic (PV) exports in FY23 and 99% in FY24. The tariff could significantly impact Indian solar manufacturers.
Steel and Aluminium: India exported $6.2 billion worth of steel and $0.86 billion worth of aluminium and related products to the US in FY25. These sectors, which had gained traction due to competitive pricing, may now face trade barriers and anti-dumping concerns.
IT Services: As per RBI data, 54% of India’s software services are exported to the US. While the current tariffs are focused on physical goods, escalating trade tensions could eventually affect the IT sector as well.
Strong Growth Sectors in Q1 FY25
In Q1 FY25, sectors such as pharmaceuticals, telecom, organised retail, aluminium, and aviation delivered strong performances. According to CRISIL, the pharmaceutical sector recorded annual revenue growth of 9–11%, outpacing the average corporate growth over the past 10 quarters. This was driven by robust export demand and stability in the domestic market.
Telecom services are expected to grow at an annual rate of 12%, supported by increased data consumption and stable ARPU (average revenue per user). The aluminium sector saw an impressive 23% growth, fuelled by better prices and rising exports.
Sectors to Watch in August
Fertiliser and Agri-Chemicals: Companies like Paradeep Phosphates and Mangalore Chemicals have reported strong quarterly numbers. A monsoon forecast that is 6% above normal could lead to healthy Kharif sowing, increasing fertiliser demand.
Defence: Bharat Electronics (BEL) reported 25% YoY growth in PAT for Q1. A strong order book and the Indian government’s emphasis on defence self-reliance are boosting the sector. At a recent summit in The Hague, NATO announced plans to raise defence spending to 5% of GDP by 2035. This is a key move towards strategic autonomy for Europe and also opens new export opportunities for India, which is rapidly expanding its domestic defence manufacturing base.
Auto: India’s auto sector is projected to grow at 4% this year. According to CRISIL, improved retail sales are driving this growth, although high inventory levels are exerting some pressure on the segment.
Future Outlook
August 2025 is expected to be a pivotal month for investors. Global uncertainties, particularly the US tariff stance and the Federal Reserve’s rate policy, could introduce volatility. However, on the domestic front, easing inflation, steady IIP figures, and robust PMI data have helped sustain investor confidence.
With the Fed keeping rates unchanged, some uncertainty around global interest rates has been reduced. Sector-wise, pharma, fertiliser, defence, and auto are likely to stay in focus due to their strong fundamentals.
Overall, August calls for a data-driven approach. For investors, it will be essential to strike a balance between sectors showing strength and the broader global headwinds.
*The companies mentioned in the article are for information purposes only. This is not an investment advice.
*Disclaimer: Teji Mandi Disclaimer
