Stock markets Sensex and Nifty experience a drop following RBI's decision to hold interest rates and concerns over potential US tariffs.
In a mixed performance, the Indian stock markets experienced a neutral trend in August 2025, as the Reserve Bank of India (RBI) decided to pause further rate cuts and global trade tensions continued to loom, particularly due to US tariffs on Indian imports.
The RBI's decision to keep the repo rate unchanged at 5.50% was aimed at allowing the full impact of the earlier 100 basis points cuts to transmit through the economy. This neutral monetary stance balanced subdued inflation forecasts (lowered to 3.1% for FY26) and steady GDP growth projections (6.5%).
However, the US-imposed tariffs of 25% on all exports to the US have introduced external uncertainty and risk to Indian exports, especially in labor-intensive sectors like textiles, leather, and gems & jewellery. This could weigh on India's GDP growth and investor sentiment.
The impact on the Indian stock markets was noticeable. The Sensex and Nifty 50, two of the key indices, experienced limited upside or cautious trading, awaiting fresh cues from economic data or further monetary easing. The Sensex fell 0.21% to 80,543.99, while the Nifty 50 dropped 0.31% to 24,574.20.
The mid-cap index and the broader small-cap index also underperformed, with the former dropping 0.8% and the latter falling 1.1%. This underperformance can be attributed to their higher exposure to the domestic economy and borrowing costs.
Sector-wise, fourteen out of the sixteen major sectors logged losses. Rate-sensitive sectors such as realty lost 1.5%, while the consumer and auto indexes fell 0.9% and 0.5%, respectively. High-weight financials were little changed.
IT and pharma stocks, which derive a significant share of revenue from the US, fell 1.7% and 2%, respectively. The US tariff pressure persists despite the RBI rate pause.
The RBI's pause in further rate cuts maintains a neutral monetary stance, balancing growth support and inflation control while waiting for clearer signals from the economy. However, rising global trade tensions driven by US tariffs pose a near-term risk to growth and market sentiment. As a result, the Indian stock markets are likely to exhibit cautious or mixed performance in the near term, influenced by domestic monetary policy clarity and external tariff-related uncertainties.
References: 1. Economic Times 2. Business Standard 3. Livemint 4. Financial Express 5. The Hindu
- The pause in further rate cuts by the Reserve Bank of India (RBI) could impact the personal-finance sector, as the neutral monetary stance might slow down borrowing costs for individuals.
- The finance and business communities are closely monitoring the US-imposed tariffs on Indian exports, as they could significantly affect the technology sector, given the growing importance of technology exports in the Indian economy.
- The decision to halt rate cuts by the RBI could influence investing strategies, as analysts now anticipate a potential pause in the general-news and business headlines regarding monetary easing in India.
- The continued US tariff pressure and global trade tensions have brought politics into the picture, as Indian policymakers strive to counteract negative impacts on the country's economy and industry, particularly in the areas of crime-and-justice, such as illegal import-export activities.
