Bond Market Steadies, Equity Indexes Remain Weak on Tariff Uncertainty

HIGHLIGHTS

• FM assures government backing as FIEO delegation raises tariff pain
• India's small businesses scramble to cushion blow from 50% US tariffs
• BSE proposes to introduce pre-open session for index, stock futures from Dec 8
• CG Power arm launches its first ₹76 billion semiconductor assembly unit in Gujarat
• Maruti Suzuki's RC Bhargava warns against US ‘bullying’, backs lower GST on small cars

Indian equities ended lower on Thursday as fresh US tariffs on Indian exports dampened sentiment, with financials and information technology stocks leading the decline. The weakness came after the US administration implemented an additional 25% levy on Indian goods, taking the overall tariff to 50%, a move seen as a setback for exporters and sectors with overseas exposure.

Sectoral performance
The pressure was evident in several index heavyweights. Financial and IT stocks bore the brunt of selling, pulling the benchmark indices down. Shares of companies set to exit the derivatives segment also fell sharply, with Aditya Birla Fashion, Adani Total Gas, CESC, and IRB Infrastructure witnessing heavy sell-offs. 

Capital market-linked counters remained weak, with Multi Commodity Exchange and 360 One WAM sliding 4–5%.

On the positive side, consumption-driven names found selective buying support amid expectations that the upcoming GST Council meeting could announce tax relief. Auto and FMCG stocks outperformed the broader market, helping cushion losses. Ola Electric continued its upward momentum, extending gains to 16% over three sessions, driven by strong investor interest.

While near-term risks remain due to higher US tariffs and global trade uncertainties, analysts noted that optimism persists for the broader equity outlook. Domestic demand resilience, supported by potential GST reductions, could provide a counterbalance to external headwinds. The market is expected to remain sensitive to further policy signals, both from New Delhi and Washington, but selective sectoral strength may offer opportunities even in a volatile environment.

Top Gainers	% Change	Top Losers	% Change
NIFTY CONSUMER DURABLES	0.56%	NIFTY IT	-1.59%
		NIFTY REALTY	-1.50%
		NIFTY FINANCIAL SERVICES	-1.20%
		NIFTY BANK	-1.16%
		NIFTY PSU BANK	-1.03%

Indian government bond yields fell sharply on Thursday, with the benchmark 10-year yield posting its steepest single-day drop in more than 15 weeks, as traders covered short positions and buying interest returned at key technical levels. The 10-year yield closed at 6.5328%, down from 6.5997% on Tuesday, marking its largest decline since mid-May.

The bond market had been shut on Wednesday for a holiday, and the session saw traders reassessing positions after the yield failed to decisively breach the 6.65% mark. Market participants noted that the retracement was technical in nature, offering relief following the recent sharp rise in yields. According to dealers, the 6.50–6.53% band now represents a crucial support zone that investors will monitor closely.

Global developments also influenced sentiment. The United States’ decision to double tariffs on Indian exports to as high as 50% raised concerns over potential growth headwinds for India. Some traders argued that weaker growth prospects could reinforce expectations of further policy easing by the Reserve Bank of India. Analysts estimate that if elevated tariffs remain in place for a year, India’s GDP growth could slow by nearly 0.7%.

Tenure	Today	Previous
10-year Gilt	6.53%	6.60%
5-year gilt	6.27%	6.33%
5-year OIS	5.74%	5.78%

The Indian rupee inched higher on Thursday, breaking a five-day losing streak, as weakness in the US dollar and expectations of central bank intervention offset the drag from additional American tariffs. The currency settled at 87.6250 per dollar, marginally firmer than Tuesday’s close of 87.6800, after touching an early high of 87.5250.

Traders said the initial advance lost momentum as broad-based dollar demand from importers emerged, with companies stepping up hedging activity on the view that elevated US tariffs would limit the rupee’s appreciation potential. The Reserve Bank of India is believed to have intervened earlier in the week, stepping in when the rupee slid to an intraday low of 87.80 on confirmation of Washington’s decision to double duties on Indian exports. The possibility of continued intervention by the central bank helped steady sentiment.

Market participants remain cautious, with analysts warning that the currency is likely to face renewed downward pressure as trade headwinds intensify. 

External developments also influenced the day’s trade. The US dollar index fell for a third consecutive session, down 0.16% in anticipation of a Federal Reserve rate cut next month. Comments from New York Fed President John Williams reinforced market bets on easing, while political pressure on the Fed from President Donald Trump added to dollar weakness. Most Asian currencies advanced, with the Korean won and Malaysian ringgit leading gains. 
 

Unit	Today	Previous
Dollar/Rupee	87.625	87.68
Dollar Index	98.04	98.28
1-year Dollar/rupee premium (%)	2.22%	2.21%

OUTLOOK
Indian markets will remain sensitive to global trade tensions, domestic policy measures and central bank actions. Equity benchmarks will likely witness volatility as investors weigh the impact of steep US tariffs on Indian exports. Financials and information technology stocks will continue to face pressure, while consumption-linked names, particularly autos and FMCG, will attract selective buying on expectations of a possible GST reduction. Mid- and small-cap counters will remain vulnerable to profit-taking, though sector-specific opportunities will emerge, particularly in paper and infrastructure-related stocks.

In the bond market, government securities will trade with a firm bias after the sharp fall in yields seen in the previous session. The 10-year benchmark yield will likely hover in the 6.50–6.55% band, with traders watching RBI’s stance closely. Short-covering momentum and expectations of supportive policy measures will sustain demand, though any escalation of tariff-related concerns could cap gains. Foreign investor flows will also play a role in determining near-term direction.

The rupee will remain under pressure despite Thursday’s minor recovery. While RBI’s presence in the market will provide intermittent support, sustained dollar demand from importers and the overhang of higher US tariffs will limit appreciation. The currency will likely trade in the 87.40–87.80 range in the near term, with global dollar movements and Federal Reserve policy cues providing additional direction. Asian currency strength could lend some support, but the rupee’s trajectory will depend on trade and capital flow developments.

Overall, domestic markets will be guided by the interplay of tariff risks, RBI’s interventions, and investor risk appetite across equities, bonds and currency.

Key Events & Data Due Friday:

Economic Data

• India Apr-Jun GDP Data
• Germany August CPI
• US July Core PCE Price Index

Corporate Actions

• Univastu India to consider bonus share issue
• Laxmi Goldorna House to consider bonus share issue
• Excel Realty N Infra to consider fund raising
• Housing & Urban Development Corporation to consider fund raising
• NHPC to consider fund raising
• RBL Bank to consider fund raising
• Ravindra Energy to consider fund raising

Policy Events

• ECB's De Guindos Speaks