Week Ahead: Trump Tariffs, INR-USD Exchange Rate, FII Outflows, and Global Cues Among Key Triggers for Indian Stock Market

The Indian stock market has entered a corrective phase, extending its losing streak for eight consecutive sessions—the longest in two years. After snapping a brief two-week recovery, the broader sentiment has turned negative, with investors displaying a sell-on-rally approach amid heightened global uncertainties.

In the third week of February 2025, market participants will closely watch a range of domestic and global factors that are expected to dictate market movements. Among the most crucial triggers are Donald Trump’s potential tariff announcements, the rupee-dollar exchange rate, foreign institutional investor (FII) outflows, domestic and international macroeconomic data, and global market cues.

Market Performance Recap: Sensex and Nifty in a Downward Spiral

The BSE Sensex and Nifty 50 witnessed significant declines last week, slipping below key psychological levels of 76,000 and 23,000, respectively. Both indices fell by 2%, marking the biggest weekly drop in the past two months.

The bearish sentiment has been fueled by:

1. Concerns over potential US trade tariffs, which could impact export-oriented industries in India.
2. Weak quarterly earnings, particularly in key sectors such as IT, banking, and manufacturing.
3. Persistent FII outflows, as foreign investors remain cautious amid global uncertainties.

With these challenges in play, the upcoming trading week will be critical in determining whether the market can stabilize or if the downtrend will continue.

Key Market Triggers for the Upcoming Week

1. Donald Trump’s Trade Tariff Announcements

One of the most significant global developments impacting the Indian market is Donald Trump’s potential tariff policies. The former US President, who is currently leading in several key battleground states ahead of the November 2025 elections, has hinted at imposing sweeping trade tariffs on imports, including those from China and India.

If implemented, these tariffs could affect Indian export sectors such as pharmaceuticals, textiles, and IT services, leading to concerns over a slowdown in India-US trade relations.

Market participants will keenly await any official announcements, as a protectionist US trade policy could trigger a fresh wave of volatility in Indian equities.

2. Rupee-Dollar Exchange Rate Volatility

The INR-USD exchange rate remains a key metric for the stock market, particularly in the context of foreign fund flows and inflationary pressures.

Last week, the Indian rupee weakened against the US dollar, approaching the ₹84.50/USD level, as rising US Treasury yields made the dollar more attractive to investors. If the rupee continues to depreciate, it could:

• Increase import costs, particularly for crude oil, which could raise inflationary pressures in India.
• Trigger further foreign fund outflows, as global investors shift capital to US dollar-denominated assets.
• Impact corporate earnings, particularly for companies dependent on imported raw materials.

Investors will keep a close eye on the Reserve Bank of India’s (RBI) intervention strategies to prevent excessive volatility in currency markets.

3. Foreign Institutional Investor (FII) Outflows

FII activity has been a major source of market volatility in recent weeks. Data shows that foreign investors have been net sellers, offloading equities worth ₹25,000 crore ($3 billion) in February alone.

The key reasons behind the FII exodus include:

• Rising US bond yields, which make American assets more attractive than emerging markets.
• Uncertainty over India’s economic growth trajectory, particularly after disappointing earnings reports from major IT and banking firms.
• Global risk-off sentiment, as investors adopt a more cautious approach amid geopolitical tensions and economic uncertainties.

Should this trend continue, the Sensex and Nifty could face further downward pressure, with large-cap and export-driven stocks likely to be the most affected.

4. Domestic and Global Macroeconomic Data

A series of macro data releases this week could influence market movements, both in India and globally.

Key Domestic Data Points to Watch:

• India’s Consumer Price Index (CPI) Inflation Data: If inflation remains high, it could reduce the likelihood of an interest rate cut by the RBI, which in turn could dampen investor sentiment.
• Index of Industrial Production (IIP): Industrial output will provide insights into India’s manufacturing and economic growth trajectory.
• GST Collection Figures: Strong GST revenues would indicate robust consumer spending, while weak numbers could point to a slowdown in economic activity.

Global Economic Events Impacting Markets:

• US Inflation Data: A higher-than-expected inflation reading in the US could trigger expectations of prolonged high-interest rates, leading to further FII outflows.
• China’s Trade Data: Given China’s role as India’s key trade partner, any signs of economic slowdown in China could impact Indian exports and manufacturing sectors.
• Federal Reserve Meeting Minutes: Any hints of policy tightening could have a ripple effect on emerging markets, including India.

5. Global Market Trends and Cues

Apart from economic data, the overall trend in global equities will have a direct impact on Indian markets.

• Wall Street Performance: Indian stocks often follow cues from US markets, particularly tech-heavy indices such as the Nasdaq and S&P 500.
• Oil Prices: Given India’s dependence on imported crude oil, any spike in Brent crude prices above $85 per barrel could add inflationary pressures and weaken market sentiment.
• Geopolitical Developments: Rising tensions in the Middle East, Ukraine, and Taiwan could introduce fresh uncertainty in global financial markets, prompting risk-averse behavior from investors.

Sectoral Outlook for the Week

1. Banking and Financials: Under Pressure

The banking sector, particularly PSU banks and NBFCs, has been under pressure due to weak earnings reports and rising interest rate concerns. However, any positive inflation data could provide some relief to the sector.

2. IT Sector: Global Headwinds Continue

The IT sector has witnessed continued selling pressure amid weak global demand and cautious enterprise spending. Any positive guidance from US tech giants could provide a much-needed boost.

3. Auto and FMCG: Defensive Plays

Auto and FMCG stocks have shown relative resilience, benefiting from steady domestic demand and falling commodity prices. Investors may continue to park funds in these defensive plays amid market uncertainty.

4. Metals and Energy: Impact of Global Factors

With China’s economic slowdown and fluctuating oil prices, metal and energy stocks could see volatile movements. Watch for global commodity trends for further clarity.