The Indian stock market is at a key point of intersection, with July 31 not only being the monthly date when contracts on the Nifty 50 expire but also the last day of the month and the last date to deal in the month of July 2025. The ongoing promising recovery that had been established during the last two trading sessions has unexpectedly taken a dramatic turn after the unexpected event of US President Donald Trump announcing new tariffs on Indian exports.
At a time when the market players were getting so used to the fact that the Nifty 50 was heading towards stabilization, Trump announcing India will have a 25 percent tariff payout on selling products to the US market starting August 1, plus certain other punishments to the company that buys products in Russia, has caused shockwaves in the trading fraternity. The immediate effect was seen on GIFT Nifty futures that went down by 150 points after the announcement.
Understanding the Current Market Dynamics
The timing of this development couldn’t be more challenging for Indian markets. The Nifty 50 had been struggling to decisively cross the crucial 24,900 mark during Tuesday and Wednesday’s trading sessions. However, bulls were drawing comfort from the fact that despite this resistance, the index managed to avoid grinding lower and even closed with modest gains on both days.
The Sensex demonstrated similar resilience, climbing 143.91 points or 0.18%, to settle at 81,481.86 on Wednesday, while the Nifty inched up by 33.95 points or 0.14%, to close at 24,855.05. This upward momentum was primarily driven by strong performance from infrastructure major Larsen & Toubro, which surged 4.87% after reporting impressive quarterly results.
However, the positive sentiment was already being tempered by US trade deal uncertainty and significant foreign fund outflows. Foreign Institutional Investors offloaded equities worth ₹4,636.60 crore on Tuesday alone, highlighting the cautious approach international investors are taking toward Indian markets.
Technical Analysis: Key Support and Resistance Levels
From a technical perspective, the Nifty 50 index is positioned at a crucial juncture. Market analysts have identified the formation of a Bullish Engulfing candlestick pattern near the important support zone of 24,610 to 24,560. This pattern typically indicates potential upward momentum, but the Trump tariff announcement has complicated this technical setup significantly.
The support zone between 24,700 and 24,600 remains firm for now, but technical experts warn that a break below 24,560 could trigger a domino effect. Such a breakdown might drag the index toward the psychologically important 24,000 level in the coming weeks. This scenario would represent a significant correction from current levels and could test investor confidence severely.
On the upside, a decisive close above 25,250 is considered necessary to signal the end of the current consolidation phase that has been ongoing for several weeks. Until such a breakout materializes, market participants are advised to maintain a cautious approach with balanced long-short strategies while implementing strict risk management protocols.
Sector-Specific Impact Analysis
The tariff announcement is expected to have varying impacts across different sectors of the Indian economy. Textiles, pharmaceuticals, and automotive components, which represent key Indian export categories, are likely to bear the brunt of these new trade restrictions. These sectors may experience reduced investor interest in the short term as market participants reassess their growth prospects under the new tariff regime.
The pharmaceutical sector, which has been a significant contributor to India’s export earnings, particularly faces uncertainty. Similarly, the textile industry, already grappling with global competition and changing consumer preferences, now has to contend with additional cost pressures that could affect their competitiveness in the US market.
Automotive component manufacturers, who have built substantial businesses around supplying to US automakers and aftermarket companies, may need to reconsider their pricing strategies and supply chain arrangements. This could lead to margin compression and potentially slower growth in the near term.
Expert Recommendations for Thursday’s Trading
Given the complexity of the current situation, market experts have provided specific guidance for Thursday’s trading session. The consensus suggests maintaining a wait-and-watch approach, particularly near the critical support zones of 24,600 to 24,450. Aggressive shorting is being discouraged, as the market’s reaction to the tariff news may create oversold conditions that could lead to sharp rebounds.
In case of a gap-down opening, the immediate support level to watch is 24,600, which lies just below the recent swing low. Market veterans believe this level could provide some stability as it represents a significant technical support zone. However, if the selling pressure intensifies, the next major support is anticipated around 24,450, described as a key bottom zone from where market stability could potentially return.
The recommendation for fresh long positions is conservative, with experts suggesting that such positions should only be considered if the Nifty stabilizes above 24,900 with strong market breadth. This approach reflects the cautious sentiment prevailing among professional traders and institutional investors.
Managing Risk in Uncertain Times
The current market environment underscores the importance of robust risk management strategies. With monthly expiry coinciding with significant geopolitical developments, volatility is expected to remain elevated. Traders and investors are advised to focus on selective stock-picking rather than broad market exposure.
The emphasis on risk management becomes even more critical when considering that foreign institutional investors have already begun reducing their exposure to Indian equities. This trend could accelerate if trade tensions escalate further, potentially leading to additional selling pressure.
Position sizing becomes crucial in such environments, with experts recommending smaller position sizes to account for increased volatility. Stop-loss levels should be carefully calculated based on recent support levels, and traders should be prepared for gap movements that could test predetermined risk parameters.
Looking Beyond the Immediate Turbulence
While the immediate focus is on navigating Thursday’s potential gap-down opening and the monthly expiry dynamics, it’s important to maintain perspective on the broader market trends. The Indian economy’s fundamental strengths remain intact, and the recent corporate earnings season has shown resilience across various sectors.
Companies like Larsen & Toubro, which reported a 29.8% rise in consolidated net profit driven by strong overseas order growth, demonstrate that Indian businesses continue to find opportunities for growth despite global challenges. This underlying strength provides a foundation for market recovery once the immediate uncertainty surrounding trade policies is resolved.
The key for market participants is to remain flexible and responsive to changing conditions while avoiding emotional decision-making during periods of heightened volatility. Thursday’s trading session will likely set the tone for how Indian markets navigate this new phase of trade uncertainty with the United States.
