With Prime Minister Narendra Modi and President Xi Jinping discussing ways to boost trade and investment, some market players are formulating investment theses based on the improving relations. Next up, talks between the US and India will be in the spotlight, after President Donald Trump said that India has offered to sharply cut tariffs on American goods. Meanwhile, all eyes are on the first Tuesday expiry of Nifty 50 index options after the recent rule change. And while domestic inflows remain strong and derivatives activity is buzzing, technical charts still point to softness beneath the surface.
Electronic manufacturers light up on Modi-Xi meeting
While India’s relations with the US remain frayed, improving ties with China are lifting sentiment among investors in India’s electronics manufacturing firms. With Prime Minister Narendra Modi and President Xi Jinping discussing ways to boost trade and investment, some market players are betting on possible partnerships between local companies and their Chinese counterparts. Since India’s electronics exports to the US are exempt from tariffs, such alliances could strengthen domestic players and help justify their premium valuations.
Domestic sectors not immune to tariff pain: Nuvama
But optimism in one corner doesn’t mean immunity elsewhere. The popular view that exporters are more vulnerable to US tariffs while domestic-focused firms offer safety is misplaced, according to Nuvama analysts. They point out that in past periods when the US current account deficit narrowed — in 2008, 2011 and 2019 — global growth took a hit, eventually hurting all sectors in India. Carmakers, industrials, and financial services suffered even more than their export-oriented peers. Nuvama is bearish on banking and financial services due to rising stress among mid- and small-sized firms, but is bullish on IT, citing relatively cheap valuations after the recent selloff.
Derivatives volumes rebound as volatility spikes Â
The heightened uncertainty is also visible in the equity derivatives space. After two months of steep declines, volumes in this segment rebounded sharply in August. On the NSE, notional turnover rose 3.3% to 237 trillion rupees ($2.7 trillion), the highest since November. The surge was even stronger on rival BSE, where average daily premium turnover jumped 38% and notional turnover surged to a record 178 trillion rupees. Activity soared as traders shuffled positions in response to tariff headlines, while volatility climbed from July lows.
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Foreign investors may be fretting over slowing corporate earnings and the fallout from US tariffs, but local investors appear unfazed. Mutual funds and insurers have poured $59 billion into Indian equities so far this year, and are close to surpassing their record inflows for 2024. Those purchases have more than cushioned the $14 billion in overseas outflows, underscoring yet again the growing heft of domestic money. Still, beneath the headline support, signs of weakness are visible — about half of the members of the BSE 200 index are trading below their 200-day moving average.
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Published on September 2, 2025
