Heightened worries over Trump tariffs, sustained selling by foreign institutional investors (FIIs), and stretched valuations amid weak earnings dragged the Indian stock market benchmarks, the Sensex and the Nifty 50, lower for the second consecutive month in August.
The Sensex lost 1.7 per cent last month after a nearly 3 per cent cut in July. The Nifty ended the month with a loss of 1.4 per cent after a 3 per cent fall in the previous month.
On Monday, September 1, both key indices rose over half a per cent each during the session, as investors’ risk appetite improved on strong macro data. India’s gross domestic product (GDP) grew at a solid pace of 7.8 per cent in the April-June quarter of FY26 (Q1FY26).
The domestic market also seems to have noticed the growing bonhomie between India and China. India’s strategic moves over the past few days indicate that the government is working in mission mode to negate the impact of the 50% tariffs imposed by US President Donald Trump.
Although it may be premature to conclude that the market has fully priced in the impact of tariffs and is poised to scale new highs, experts believe this could be an opportune moment to invest in Indian equities. They point to five key factors that are likely to support the market over the medium to long term:
Nifty 50 outlook: 5 key factors that indicate it could be the right time to buy stocks in India
1. Despite Trump tariffs, India’s GDP could rise over 6% in FY26
India’s Q2FY26 GDP numbers surprised analysts. Clocking a 7.8 per cent year-on-year (YoY) growth, the Q2 GDP numbers were even stronger than the 7.4 per cent YoY growth seen in Q4FY25.
Despite Trump’s tariff-related uncertainty, experts believe the Indian economy could rise at the rate of 6.2-6.5 per cent in the current financial year due to tax cuts and the RBI’s dovish stance.
“We maintain our real GDP growth in FY26 at 6.2 per cent YoY. Nominal GDP will remain challenged in FY26 as inflation sinks, and we expect a nearly 8.5 per cent YoY figure to register,” said SBI Capital Markets (SBICAPS).
Rahul Bajoria, India and ASEAN Economist at BofA Securities, maintains Indian GDP growth estimates at 6.5 per cent for FY26.
“From a mechanical standpoint, we see upside risks to our FY26 GDP forecast of 6.5 per cent, but at the same time, we see downside risks to our FY27 GDP print of 7 per cent, which could be much more disrupted by trade impact,” said Bajoria.
Meanwhile, India’s manufacturing activity expanded at its fastest pace in over 17 years in August, driven by stronger alignment between supply and demand.
India’s solid growth outlook indicates that the Indian stock market is poised for a healthy gain over the long term. There could be short-term volatility and correction phases, but overall, the market outlook remains positive for the next one to two years.
“The medium-term outlook for the Indian stock market remains neutral to positive. While a major downside is unlikely, the Nifty may witness fluctuations of 100–200 points from time to time due to global cues,” said Prashanth Tapse, Senior VP (Research), Mehta Equities.
“India’s macroeconomic fundamentals remain strong; however, policy unpredictability from US President Donald Trump continues to pose a key risk. The 24,350 level is seen as a favourable point for accumulation,” Tapse said.
Tapse believe the Nifty could hover near the all-time high by the end of this financial year.
2. Earnings revival on cards
Experts expect the earnings of Indian corporates to revive from the second half of the financial year (H2FY26) largely due to tax cuts, policy easing, GST reforms, and lower input costs.
“Supportive fiscal policies such as GST rationalisation and tax rebates are concrete efforts taken by the government to boost ailing consumption in the country. Recent monetary policy changes covering CRR and repo cuts are expected to reduce corporate borrowing costs, revive various capex projects, and reduce the interest burden on existing loans. Collectively, they have the potential to drive earnings growth and boost investor confidence,” Unmesh Sharma, the head of institutional equities at HDFC Securities, told Mint.
Earnings revival could also justify the premium valuation of the market, which may trigger a rally in the domestic stock market led by foreign capital inflow.
Experts at Morgan Stanley believe structural changes in the economy and improving macro stability have created a strong case for re-rating of the Indian stock market.
According to Morgan Stanley, several structural trends, including declining oil intensity in GDP, rising share of exports, fiscal consolidation and lower inflation, will enable India to sustain high growth at lower volatility.
Morgan Stanley believes this phase of soft earnings is ending.
“Supporting a turn in growth is a dovish central bank, likely GST reforms, a good monsoon season, recovery in consumer confidence, thawing of relations with China, and likely improving capex,” the global financial firm said in the report.
3. US Fed rate cuts
The start of the US rate reduction cycle could reverse the trend of foreign capital outflow from the Indian stock market.
Foreign institutional investors (FIIs) have been aggressively selling Indian stocks in the cash segment since July due to weak earnings, stretched valuations of the Indian stock market, and a stable dollar.
Rate cuts in the US could weaken the dollar and bond yields, potentially prompting FIIs to shift their stance on India, amid signs of an earnings revival and healthy growth prospects.
4. Government reforms
The Indian government is working on the domestic and global front to mitigate the tariff pain and seems focused on turning the crisis into an opportunity.
From rationalising GST rates to diversifying export markets, the government is implementing a range of measures to minimise the risks posed by US tariffs.
Prime Minister Narendra Modi’s recent engagements with Japanese Prime Minister Shigeru Ishiba in Tokyo, Russian President Vladimir Putin, and Chinese President Xi Jinping during the 25th Shanghai Cooperation Organisation (SCO) Summit in Tianjin, China, are being viewed as significant strategic developments.
5. Tariff rates may come down
Experts believe that US tariffs will eventually be reduced to 18–20 per cent as negotiations between Washington and New Delhi progress. They also emphasise that the US and India, being natural allies, are likely to find common ground and reach a mutually acceptable agreement.
VK Vijayakumar, Chief Investment Strategist, Geojit Investments, believes Trump’s tariffs are very unlikely to remain at the current level for long, as negotiations are underway.
He also underscored that India may also make adjustments regarding its purchase of Russian oil.
“There is no longer a strong incentive for India to stick to Russian crude, as the discount has dropped from $20 in 2022 to around $1.5 now, offering little benefit. Consequently, India could reduce its oil imports from Russia and increase purchases from the US—a trend already underway. It is quite possible that the penal tariffs may eventually be removed,” said Vijayakumar.
“There is also growing opposition within the US to these tariffs on India. Moreover, India and the US are natural allies. Over the years, India-US relations have grown stronger. The US, along with the European Union, has been the leader of the democratic liberal world,” Vijayakumar.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
