New Delhi, Sep 12 Domestic institutional investor (DII) buying, optimism around GST rationalisation, coupled with a resilient Q1 GDP data and rally in automobile stocks has deferred a big correction in the Indian equity market amid over $4 billion FIIs sell off, and the tariff jitters by US President Donald Trump, a report said on Friday.
DIIs infused $10.8 billion, offsetting the FIIs' $4.3 billion sell-off, which restricted the market to a modest correction in August, with the Sensex and Nifty down 1.5 per cent and 1.2 per cent, respectively, according to HSBC Mutual Fund.
Q1FY26 GDP data surprised at 7.8 per cent year-on-year (YoY), supported by strong services and manufacturing, and CPI moderated to 1.6 per cent in July, the lowest in over eight years, which supported the buying activity in the market.
The auto sector outperformed, benefitting from GST rate cuts, whereas oil and gas, power and real estate lagged.
S&P upgraded India’s sovereign rating to BBB (Stable) from BBB–, a first in nearly two decades, also giving a boost to the equity market in the month.
Meanwhile, mid and small caps fell more sharply (–2.8 per cent and –3.6 per cent, respectively).
The US decision to impose a 50 per cent tariff on Indian goods weighed on currency, equity and bond markets. Indian currency weakened while yields hardened on fiscal concerns, the report said.
Fiscal deficit target of 4.4 per cent of GDP is expected to be met, though weak tax collections and GST rationalisation will pose some risks.
The report emphasised that the RBI has front-loaded 100 basis points of rate cuts in 2025, and is now likely to pause.
Meanwhile, liquidity remains ample, supporting shorter-end yields in the debt market.
Despite global trade headwinds and tariff pressures, India’s macro fundamentals remain resilient with strong GDP growth, benign inflation, and a supportive policy backdrop, the report noted.
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