The US & China hold the key to market mood

The equity market is expected to trade in a range-bound manner this week, tracking developments on the India-US trade negotiations post the imposition of higher 50% aggregate tariffs on Indian goods. Further, market is likely to watch out for the outcome of PM Modi’s much-anticipated visit to China, where he will be hobnobbing with Chinese  & Russian Presidents Xi Jinping and Vladimir Putin.

On the domestic front, focus will be on the GST Council meeting scheduled for September 3-4 to discuss the proposed GST reforms. Additionally, markets on Monday would react to India’s Q2 GDP and US retail inflation data released after-market hours on Friday. 

On the global macro front, US Fed Chair Jerome Powell used the closely watched Jackson Hole Symposium to send his strongest signal yet that the central bank is preparing to soon restart interest rate cuts. While he cautioned that inflation risks remain elevated, his tone was interpreted as dovish, raising expectations of a rate cut at the Fed’s September 16–17 meeting.

Last week, Nifty 50 ended with a loss of 443 points at 24,427 (-1.8%), weighed down by concerns over high US tariffs on Indian goods. The broader market indices underperformed, with Nifty Midcap100 and Nifty Smallcap100 down by 3.3% and 3.9% respectively. Amongst sectors, realty and PSU banks were the worst hit, falling by 4.3% and 3.5%, respectively. Nifty FMCG was the sole gainer. up 0.7%, on hopes of increased demand, driven by the proposed GST rationalization. Market sentiment was further dampened by persistent FII selling, with outflows crossing Rs38,500cr for the month as on August 28.    

On the sectoral front, the government’s proposal to rationalise GST rates comes as a much-needed booster dose for the auto sector given that the bulk of the sector falls under the 28% slab, which is proposed to be reduced to 18%. This is expected to reduce vehicle prices by ~7%, hence leading to a demand revival. Segmental beneficiaries include small cars (as SUVs are likely to be taxed higher), three-wheelers and commercial vehicles (as benefit for two-wheelers would be partially offset by ABS mandate).

We maintain a positive outlook on the cement sector, given: a) strong earnings growth in FY26E , b) stable pricing, c) increased consolidation, and d) favorable fuel prices. Stocks in key themes such as T&D, renewable, and defense remain our preferred picks.

We expect both staples and discretionary categories to perform well, particularly where mid-mass income households have higher sensitivity to growth. Further, defence stocks are likely to be in focus amid India’s ongoing strategic engagements with global leaders, which could reinforce opportunities for collaboration, technology transfer, and long-term order inflows.

(The writer is Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)