Turbulence Returns to Domestic Markets

The RBI opted to hold the repo rate steady at 5.5 per cent, amid escalating U.S. tariff tensions

Indian equities faced a challenging fortnight as benchmark indices came under pressure, weighed down by escalating trade tensions between India and the U.S., global risk-off sentiment, and a tepid start to the Q1FY26 earnings season. The U.S. government announced a 25 per cent tariff on Indian goods, with additional penalties linked to India’s ongoing defence and crude trade with Russia. There were also warnings of potentially steeper tariffs in the near future.[EasyDNNnews:PaidContentStart]

India responded firmly, criticizing the unilateral moves and standing by its strategic decisions. While Indian merchandise exports to the U.S. account for only about 2 per cent of the country’s GDP, the impact was more pronounced in export-driven businesses, especially the IT sector, given their significant dependency on U.S. clients for revenue and growth. Reflecting rising uncertainty, the India VIX, a gauge of near-term market volatility, spiked notably, signalling elevated investor nervousness compared to the past few months.

Amid weakening sentiment and persistent foreign portfolio outflows, headline indices corrected, with the BSE Sensex and Nifty 50 declining by 1.42 per cent and 1.61 per cent, respectively. The broader markets were hit harder. The BSE Mid-Cap Index dropped 3.46 per cent, while the BSE Small-Cap Index saw a steeper fall of nearly 5 per cent. Across the board, all sectoral indices closed in the red.

The BSE Realty Index took the biggest hit, plunging over 10 per cent as investors booked profits after a sharp rally. Concerns such as price fatigue, flattening sales in the luxury segment, rising inventory, and a high base effect weighed on sentiment, especially in top-tier cities where growth seems to be plateauing. The IT sector too witnessed sustained selling pressure, driven by weak quarterly numbers, reduced client spending, margin stress, and reports of large-scale layoffs.

On an aggregate basis, the sector posted just 6 per cent revenue and 4 per cent operating profit growth so far in Q1FY26, underperforming broader expectations. In contrast, defensive sectors like FMCG and Healthcare witnessed relatively limited declines, as investors rotated capital into safer segments amid the volatility. On the flows front, FIIs remained net sellers, pulling out approximately ₹34,000 crore during the period.

However, DIIs offered strong support, infusing around ₹42,200 crore into domestic equities. In a key policy decision, the RBI’s Monetary Policy Committee (MPC) held the repo rate steady at 5.5 per cent, pausing after three consecutive rate cuts since February.

Stay tuned as markets continue to digest Q1 earnings, monitor India-U.S. trade dynamics, and navigate broader global uncertainties shaping investor outlook.

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