Macro Woes To Keep ‘Struggling’ Indian Stocks On Edge Despite Much-Awaited Boosts

Indian stocks remain under pressure with two key macroeconomic events failing to lift investor sentiment, as global risk-off persists, keeping foreign investors cautious.

As the street anticipated, the Reserve Bank of India — under its new chief — cut the key rate for the first time in five years while retaining its neutral stance. This comes after the central bank announced special measures to boost liquidity.

The rate cut by the Reserve Bank comes a week after the Narendra Modi government unveiled historic tax cuts in its Union Budget. These measures underscore the urgency to boost growth as the third-quarter growth came at the lowest in two years.

Despite these positive developments, Indian stocks remained cautious, with NSE Nifty 50 and BSE Sensex down 0.5% and 0.3%, respectively, since the budget. Both benchmarks declined on key events, while small and mid-cap stocks also lacked optimism.

The domestic stocks that fell 11% from their peak in September last year are unable to recover as global funds extend their selloff.

Since October last year, foreign institutional investors have sold Rs 1.86 lakh crore in equity selloff, according to the data from National Securities Depository Ltd. Global funds have sold Rs 85,841 crore so far in 2025, the worst-ever start to any year.

Even as the Modi government won the national capital after over two decades, markets are not in a mood to come out of pressure, according to Prashanth Tapse, Sr VP of Research at Mehta Equities Ltd.

Budget and RBI boost is a long-term impact to the economy as well as markets, he said, adding that, investors are worried for short-term actions impacting overall markets and the economy.

Rising volatility, given that US President Donald Trump's tariff measures continue to pose a threat to risk assets, give the surge in US treasuries and the dollar. Since November last year, the dollar index — which tracks the greenback's performance against a basket of 10 leading global currencies — has risen nearly 5%.

The market's movement is not entirely related to Trump, Samir Arora, founder and fund manager, Helios Capital told NDTV Profit. But from the FII point, it is the currency that is impacting the market mood, with the rupee recently declining by 5.1% over the past year, the fund manager said.

Trump, in his latest pursuit to 'Make America Great Again', unveiled plans to impose 25% tariff on all imports of steel and aluminum. He said the tariffs would apply to import of the metals from all countries.

This comes after a series of threats against Mexico, Canada and China. While tariffs on Mexico and Canada are on hold, China’s retaliatory tariffs on US goods have taken effect.

The first half of the year will continue to remain volatile with reasons like Trump tweets and FII’s action, Tapse said.

Global funds are on edge in India's "struggling" equities with slow growth, elevated US bond yields and forex pressures, analysts at HSBC said in a recent note.

Growth is likely to remain weak for at least two quarters before the lower base or potential policy impact kicks in, it said. "We see downside risk to consensus’ 15% growth expectations in calendar 2025."

Despite sharp pullback in equities, tax cuts in the union budget and the rate cut by the central bank, Bernstein Research sees no inflection point to add more risks in stocks. It maintains its preference for low volume counters.

Further, the worst of earnings downgrade cycle is also not over yet, Bernstein said. Analyst estimates are already near record bearish levels for staples, energy and materials, suggesting a tactical contrarian positive view. "All other sectors are not showing any signs of bottom yet in the downgrades."

While the market has faced pressure, particularly due to a dip in global investor sentiment, India is expected to benefit relatively when global markets stabilise, Arora said.

Meanwhile, the rupee’s plunge to record lows will make the Reserve Bank of India cautious in cutting interest rates too deeply. The currency became the worst in Asia in 2025 from the most stable one in the previous years. In his policy speech, Sanjay Malhotra said that interventions in the forex market will focus on smoothening excessive and disruptive volatility and not targeting any level of the rupee.

Malhotra also stressed on the global growth challenges in his address. Global economic backdrop remains challenging and the global economy is growing below the historical average, RBI Governor said.