Rupee at 5-month low on Tariff Fears; Equities Struggle Amid Broad-Based Selling

HIGHLIGHTS

• India assessing tariff implications and vows to protect national interests
• Income Tax department conducts surveys at Nuvama and Jane Street offices in Mumbai
• Cognizant beats estimates with 8.1% revenue growth, raises full-year guidance
• RBI unlikely to re-introduce fixed-rate liquidity operations: Report
• Waaree Energies begins operations at solar module plant in Gujarat

Indian equity markets ended in the red on Thursday, reversing early gains as broad-based selling pressure weighed on sentiment. Weakness in metal, financial, and pharma stocks, coupled with mixed corporate earnings, dragged benchmark indices lower. Caution ahead of key global central bank decisions further dampened risk appetite.

The Nifty 50 slipped as 39 of its components closed in negative territory, while the Nifty Midcap 100 underperformed with a 0.9% drop, reflecting broader market weakness. The Nifty Bank index also declined 189 points to 55,962. Market breadth was negative, with the advance-decline ratio at 1:2.

Sectoral Performance
Metal stocks were the biggest laggards. Tata Steel fell 3% following subdued management commentary on its June-quarter performance. Adani Enterprises also declined 3%, while Ambuja Cements shed 4% after its results. Vedanta slipped 2% post-earnings.

Among pharma names, Sun Pharma dropped 2% despite meeting expectations, as rising R&D costs squeezed margins. Broader pressure was visible in midcaps, with Aarti Industries, Birlasoft, and Hindustan Copper plunging around 6% each after their exclusion from the derivatives segment.

With investor sentiment fragile and earnings offering little support, equities are likely to remain rangebound in the near term. Focus will stay on upcoming global cues and management guidance from ongoing corporate results. 

Top Gainers	% Change	Top Losers	% Change
NIFTY FMCG	1.44%	NIFTY OIL & GAS	-1.48%
NIFTY MEDIA	0.10%	NIFTY PHARMA	-0.13%
		NIFTY METAL	-1.22%
		NIFTY HEALTHCARE INDEX	-1.07%
		NIFTY PSU BANK	-0.82%

Indian government bond yields climbed for a second straight month in July, as the Reserve Bank of India's aggressive liquidity tightening measures reduced expectations of another rate cut. The benchmark 10-year yield ended at 6.3735% on Thursday, marginally higher than the previous session’s 6.3700%. Over July, the yield rose by 5 basis points, following a 10-basis point increase in June.

The central bank’s continued use of variable rate reverse repos (VRRRs), including higher quantum and shorter tenors, signaled a firm intent to absorb surplus liquidity. This shift has puzzled investors, especially after the RBI delivered a larger-than-expected rate cut in June. The tightening via VRRR auctions is seen as at odds with easing signals, complicating the rate trajectory outlook.

Earlier, easing inflation—hitting a six-year low—had bolstered hopes of another rate cut in August. This had prompted a return of foreign portfolio investors to Indian bonds, following significant outflows earlier in the fiscal year.

However, comments by RBI Governor Sanjay Malhotra have tempered those expectations. He emphasized that monetary policy will now focus more on forward-looking growth and inflation indicators. With the policy stance no longer explicitly accommodative, the bar for further easing has been raised, likely keeping yields elevated in the near term.

Tenure	Today	Previous
10-year Gilt	6.37%	6.37%
5-year gilt	6.02%	6.03%
5-year OIS	5.73%	5.73%

The Indian rupee posted its steepest monthly decline in nearly three years in July, weighed down by rising US trade tensions and persistent foreign portfolio outflows. On Thursday, the rupee closed at 87.5950 against the US dollar, marking a 0.2% drop for the day and a 2% loss for the month — its worst monthly fall since September 2022.

The currency briefly touched a five-month low of 87.74 after US President Donald Trump threatened to impose a 25% tariff on Indian exports beginning August 1. Market participants fear the rupee could test its all-time low of 87.95 if trade talks fail to yield progress in the coming days.

Traders indicated that the Reserve Bank of India likely intervened in the currency market on Wednesday and Thursday, but the actions were measured rather than aggressive. Despite this, the rupee remained under pressure due to a steady outflow of foreign investments — overseas investors pulled $2 billion from Indian equities in July alone.

Adding to the pressure, broader weakness in Asian currencies persisted as lacklustre Chinese economic data and looming US tariffs weighed on regional sentiment. The dollar index remained steady at 99.8 after a sharp rise in the previous session.

Unit	Today	Previous
Dollar/Rupee	87.60	87.42
Dollar Index	99.84	98.82
1-year Dollar/rupee premium (%)	1.98%	2.02%

OUTLOOK
Equity markets are expected to face continued pressure, particularly in large-cap IT, financials, and metals. Disappointment from June-quarter earnings, along with subdued management commentary, may dampen investor enthusiasm. With midcaps underperforming and market breadth staying weak, broader participation could remain limited. Volatility may rise ahead of key global events, including the US Federal Reserve’s policy decision and developments in US-India trade talks. Stock-specific action will likely dominate, with investors closely watching guidance from companies in consumer, auto, and infrastructure sectors.

In the bond market, yields may stay elevated as the Reserve Bank of India maintains a firm grip on liquidity through aggressive cash absorption. The central bank’s pivot toward a data-dependent policy stance, as highlighted by Governor Sanjay Malhotra, suggests that rate cuts will be unlikely in the near term despite softening inflation. Investors may stay on the sidelines ahead of the RBI’s upcoming policy review on August 6, while global cues—particularly from the US Fed—could influence short-term bond movements.

The Indian rupee is expected to stay under pressure amid persistent foreign portfolio outflows and trade-related uncertainty. The currency’s sharp monthly fall and its proximity to record lows reflect market concern over the US tariff threat. In the absence of progress in bilateral trade talks, the rupee could breach its all-time low. While RBI intervention may provide occasional support, sustained recovery will likely depend on improved risk sentiment and a reversal in capital outflows.

Key Events & Data Due Friday:

Economic Data

• China July Caixin Manufacturing PMI
• India July S&P Global Manufacturing PMI 
• India weekly FX Reserves
• Eurozone July HCOB Eurozone Manufacturing PMI
• Eurozone July  CPIUS July Non-farm Payrolls
• US July S&P Global Manufacturing PMI
• US June Construction Spending
• US July ISM Manufacturing PMI
• US Baker Hughes Oil Rig Count

Corporate Actions

• Earnings: adani power, delhivery, glaxosmithkline pharmaceuticals, godrej properties, graphite india, itc, lic housing finance, procter & gamble health, steel strips wheels, tata power company, upl, venus remedies
• Maral Overseas to consider fund raising
• Narayana Hrudayalaya to consider fund raising
• SRG Housing Finance to consider fund raising
• Adani Power to consider stock split