The Indian financial markets entered September with renewed optimism following a significant recovery on the first trading day of the month, breaking a three-day losing streak amid strong domestic economic data and shifting global dynamics. The BSE Sensex closed at 80,364.49 points with a gain of 554.84 points (0.70%), while the NSE Nifty 50 ended at 24,625.05 points, up 198.20 points (0.81%). This rebound came against the backdrop of India’s robust Q1 FY26 GDP growth of 7.8%, which exceeded expectations and reinforced confidence in the world’s fifth-largest economy.
Market Performance and Recovery
Index Movement and Sectoral Performance
The Indian equity markets demonstrated remarkable resilience on September 1, 2025, with all major indices posting gains after three consecutive sessions of decline. The broader markets significantly outperformed benchmarks, with the Nifty Midcap 100 gaining 1.97% and the Nifty Smallcap 100 surging 1.57%. Market breadth remained exceptionally positive with 1,945 stocks advancing versus 862 declining, indicating broad-based buying interest across segments.
The automotive sector emerged as the standout performer, leading the rally with a remarkable 2.80% gain. This surge was driven by multiple factors including strong monthly sales data, optimism around festive season demand, and expectations of GST rationalization benefits. Key gainers in the auto space included Tube Investments of India (+6.36%), Exide Industries (+4.08%), and Bajaj Auto (+4.01%). The sector’s performance was particularly significant given the upcoming GST Council meeting and potential tax reforms.
Consumer durables followed closely with a 2.08% gain, reflecting strong demand for discretionary products amid improving economic sentiment. The metals sector gained 1.64%, benefiting from higher base metal prices and stronger Chinese demand. Information technology stocks advanced 1.59%, supported by expectations of US Federal Reserve rate cuts that could benefit IT exporters.
Currency Dynamics
The Indian rupee faced continued pressure, trading near its record low of 88.20 against the US dollar. The currency has weakened approximately 4.84% over the last 12 months, with recent weakness attributed to US tariff uncertainties, heavy foreign equity outflows, and dollar demand from importers. Despite intervention efforts by the Reserve Bank of India, the rupee’s depreciation has created both challenges and opportunities for Indian exporters.
Institutional Investment Flows
Foreign vs Domestic Institutional Investors
A critical trend shaping market dynamics is the stark divergence between Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs). FIIs continued their selling streak for the sixth consecutive session on September 1, offloading securities worth ₹1,429.71 crore despite the market’s recovery. This sustained selling pressure from foreign investors reflects concerns over US-India trade tensions and global risk-off sentiment.
In sharp contrast, DIIs demonstrated unwavering support, purchasing equities worth ₹4,344.93 crore on September 1, marking their fifth consecutive day as net buyers. Over the recent trading sessions, DIIs have consistently absorbed FII selling, with their net purchases significantly exceeding foreign outflows. This domestic institutional support has been crucial in stabilizing markets during periods of external uncertainty.
Institutional Investment Flows
Foreign vs Domestic Institutional Investors
A critical trend shaping market dynamics is the stark divergence between Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs). FIIs continued their selling streak for the sixth consecutive session on September 1, offloading securities worth ₹1,429.71 crore despite the market’s recovery. This sustained selling pressure from foreign investors reflects concerns over US-India trade tensions and global risk-off sentiment.
In sharp contrast, DIIs demonstrated unwavering support, purchasing equities worth ₹4,344.93 crore on September 1, marking their fifth consecutive day as net buyers. Over the recent trading sessions, DIIs have consistently absorbed FII selling, with their net purchases significantly exceeding foreign outflows. This domestic institutional support has been crucial in stabilizing markets during periods of external uncertainty.
The cumulative impact shows that while FIIs sold ₹8,312.66 crore on August 29 alone, DIIs bought ₹11,487.64 crore, resulting in a net positive flow of ₹3,174.98 crore. This pattern underscores the growing importance of domestic capital in supporting Indian equity markets and reducing dependence on foreign flows.
Economic Fundamentals and Growth Drivers
GDP Growth and Manufacturing Strength
India’s economic fundamentals provided strong support for market optimism, with Q1 FY26 GDP growth reaching 7.8%, the highest in five quarters. This growth was broad-based, with manufacturing and construction sectors posting growth above 7%, while services contributed nearly 9% growth, reinforcing India’s services-led economy structure.
The manufacturing sector’s performance was particularly impressive, with the HSBC India Manufacturing PMI reaching 59.3 in August 2025, marking the highest level since February 2008 and representing a 17-year high. This surge was driven by rapid expansion in production, strong domestic demand, and robust new order growth, despite some moderation in export orders due to US tariff uncertainties.
Manufacturing output growth accelerated to nearly a five-year high, with new orders touching a 57-month high during August. Companies stepped up input purchases and hiring, with employment rising for the 18th consecutive month, though at a slower pace. The sector’s resilience against external headwinds, particularly US tariffs, demonstrates the strength of domestic demand in cushioning economic growth.
US Tariffs and Trade Relations
Impact of 50% Tariff Implementation
The implementation of 50% US tariffs on Indian goods on August 27, 2025, represents one of the most significant trade challenges facing the Indian economy. These tariffs, among the highest imposed by the US, affect a wide range of products including textiles, gems and jewelry, footwear, sports equipment, furniture, and chemicals. The tariffs were imposed as punishment for India’s continued purchases of Russian oil, adding a 25% surcharge to existing 25% duties.
The impact on specific sectors varies significantly. Labor-intensive industries such as textiles, garments, gems and jewelry, fisheries, leather goods, and handicrafts are particularly vulnerable. The Global Trade Research Initiative estimates that Indian exports to the US might decline from $86.5 billion to around $50 billion by 2026, representing a potential 70% decline in exports for the most affected sectors.
However, certain sectors have been exempted from the tariff hikes. The Indian pharmaceutical sector, which exported approximately $8.7 billion worth of generic medications to the US in 2024, has been spared due to the critical role these drugs play in providing affordable healthcare. Semiconductors, consumer electronics, aluminum, steel, and passenger vehicles are subject to separate tariff structures.
Market Response and Government Initiatives
Despite the significant tariff challenge, Indian markets have shown remarkable resilience, with the manufacturing PMI remaining strong and domestic demand continuing to support economic growth. Prime Minister Narendra Modi has committed to supporting affected sectors through tax reductions and self-reliance initiatives, promising a “massive tax bonanza” as policy support.
The government has announced plans to provide financial support and incentives to affected exporters, encouraging them to diversify into markets such as Latin America and the Middle East. Additionally, the weakening rupee could provide some offset to tariff impacts by making Indian exports more competitive in non-US markets.
GST Council Meeting and Policy Reforms
Expectations from the 56th GST Council Meeting
The upcoming GST Council meeting scheduled for September 3-4, 2025, represents a watershed moment for India’s indirect tax system. The meeting is expected to deliberate on Prime Minister Modi’s announced “Next-Generation GST Reforms,” which could fundamentally restructure India’s tax landscape.
The centerpiece of proposed reforms is the transition to a simplified two-slab GST structure, with primary rates of 5% and 18%, effectively phasing out the current 12% and 28% slabs. Under this proposal, approximately 99% of goods currently taxed at 12% would move to the 5% bracket, while around 90% of products in the 28% category would shift to 18%. A 40% rate would remain for sin goods and luxury items.
Key sectors expected to benefit include insurance (potential reduction from 18% to 5% or exemption), electronics and white goods (reduction from 28% to 18%), textiles and fertilizers (reduction from 12% to 5%), and small cars (reduction from 28% to 18%). These changes could significantly boost consumption and reduce compliance costs for businesses.
Addressing Structural Issues
The GST Council is also expected to address long-standing issues such as inverted duty structures affecting industries like textiles, footwear, fertilizers, paper, and packaging. These sectors face situations where input taxes exceed output taxes, leading to blocked Input Tax Credit and working capital constraints.
Industry and states have flagged concerns that without proper correction of duty inversion, the benefits of rate cuts may not fully pass through to consumers. The Centre has indicated that structural reforms under GST 2.0 would work on correcting inverted duty structures to align input and output tax rates.
Sectoral Analysis and Performance
Automotive Sector Leadership
The automotive sector’s exceptional performance on September 1 reflects multiple positive catalysts converging simultaneously. Monthly sales data showed mixed but generally positive trends, with Eicher Motors reporting strong 55% year-on-year growth and TVS posting 30% growth. The sector’s financial health, characterized by debt-free status for many companies and favorable currency conditions, provides a strong foundation for sustained growth.
The export momentum in the automotive sector is particularly noteworthy, with two-wheeler manufacturers and car companies successfully penetrating significant global markets. The Indian rupee’s position above 88 against major currencies creates potential export windfalls for auto companies, offsetting some domestic market pressures.
Looking ahead, the Electric Vehicle segment is viewed as particularly compelling at current valuations, with companies focused on this transition well-positioned for future growth. The upcoming GST Council meeting’s potential benefits for the auto sector have contributed to making Nifty Auto the best-performing sector in August with 10% returns.
Information Technology Resilience
The IT sector’s 1.59% gain on September 1 reflects growing optimism about global demand and currency benefits. Despite concerns about US tariffs affecting overall trade relations, the IT services sector has largely remained insulated from direct tariff impacts due to the nature of services exports.
The sector continues to benefit from expectations of US Federal Reserve rate cuts, which typically support risk appetite for emerging market assets and benefit dollar-earning IT companies. Additionally, the weakening rupee provides a natural hedge for IT exporters, improving their competitiveness and profit margins when converting dollar revenues.
Metals and Commodities
The metals sector’s 1.64% gain reflects both domestic demand strength and improving global commodity prices. Higher base metal prices and stronger Chinese demand have supported sector sentiment, despite ongoing concerns about global trade tensions.
Gold and silver prices reached all-time highs in Indian markets, with gold October futures hitting ₹1,05,937 per 10 grams and silver December futures reaching ₹1,24,369 per kg. The surge in precious metals reflects safe-haven demand amid global uncertainty, Federal Reserve rate cut expectations, and rupee weakness supporting domestic prices.
Global Market Context and Commodity Trends
Asia-Pacific Market Dynamics
Indian markets are navigating a complex global environment, with mixed signals from major economies. While US markets showed resilience, Asian markets displayed mixed performance, reflecting uncertainty about global trade policies and economic growth prospects.
China’s economic challenges, including factory activity slowdown despite government efforts, have created both risks and opportunities for India. The recent SCO Summit provided a platform for India to engage with China and Russia, signaling diplomatic efforts to maintain economic ties despite US trade pressures.
Commodity Price Movements
Commodity markets have shown significant volatility, with crude oil trading around $64-65 per barrel, reflecting global supply-demand dynamics and geopolitical tensions. Gold reached record highs both globally and domestically, driven by Federal Reserve rate cut expectations and safe-haven demand.
The precious metals rally has been particularly pronounced in Indian markets, with gold showing a massive 46.39% year-on-year jump and silver rising 45.54% annually. This performance reflects both global trends and domestic factors including rupee weakness and festive season demand.
Monetary Policy and Central Banking
Reserve Bank of India’s Position
The Reserve Bank of India faces complex challenges in managing currency stability while supporting economic growth. Despite the rupee’s weakness, the central bank has shown measured intervention, allowing some market-driven depreciation while preventing excessive volatility.
The RBI’s approach reflects a balance between supporting export competitiveness through currency adjustment and managing inflationary pressures from imported goods. With domestic growth remaining strong and inflation contained, the central bank has room to focus on financial stability while supporting economic expansion.
Global Central Bank Policies
The expectation of Federal Reserve rate cuts, currently priced at around 85% probability for September, continues to influence global capital flows and emerging market dynamics. Lower US interest rates typically support capital flows to emerging markets like India, though current trade tensions complicate this traditional relationship.
The European Central Bank’s policy stance and other major central banks’ actions also influence global risk appetite and commodity prices, indirectly affecting Indian market performance.
Future Outlook and Key Risks
Near-Term Market Drivers
Several factors will likely influence Indian market performance in the coming weeks. The GST Council meeting outcomes could provide significant positive catalysts if substantial reforms are approved. Auto sales data for the festive season will be crucial for sector performance, while global PMI data and US employment reports could influence overall risk sentiment.
The sustainability of DII buying support will be critical, particularly if FII selling pressures continue. The market’s ability to maintain current levels while navigating global uncertainties will test the strength of domestic institutional support and retail investor confidence.
Structural Challenges and Opportunities
The US tariff situation presents both immediate challenges and medium-term opportunities for structural reforms. While affected sectors face significant headwinds, the situation may accelerate India’s focus on domestic market development and diversification of export destinations.
The GST reforms, if implemented successfully, could provide substantial long-term benefits through simplified compliance, reduced costs, and enhanced consumption. The manufacturing sector’s strong performance despite external challenges demonstrates the potential for continued economic resilience.
Conclusion
The Indian market overview for September 2, 2025, reveals a complex but fundamentally strong economic landscape. Despite significant external challenges including US tariffs and currency pressures, India’s domestic economic fundamentals remain robust, supported by strong GDP growth, resilient manufacturing performance, and unwavering domestic institutional support.
The market’s recovery on September 1 following three days of decline demonstrates the underlying strength and resilience of Indian equities. With the GST Council meeting potentially delivering substantial structural reforms and the festive season approaching, Indian markets appear well-positioned for continued growth, provided global trade tensions can be managed effectively.
The divergence between foreign and domestic investor behavior highlights India’s reduced dependence on foreign flows and the growing maturity of domestic capital markets. This trend, combined with strong economic fundamentals and policy support, suggests that Indian markets can maintain their growth trajectory despite global headwinds.
Disclaimer
This article was researched by humans and compiled and written with the assistance of AI tools to improve efficiency and clarity, with human editorial review applied before publication. While care has been taken to verify information, AI-assisted content can contain errors, omissions, or outdated details, and readers should independently verify critical facts and figures. The information provided is for general informational purposes only and does not constitute financial, investment, tax, legal, or other professional advice. Market conditions can change rapidly, and past performance is not indicative of future results, so any actions taken based on this content are at the reader’s own risk. No warranties are made regarding accuracy, completeness, or timeliness, and the publishers and authors disclaim liability for any losses arising from reliance on this material. This disclosure is provided in the interest of transparency to support audience trust in line with emerging best practices for AI use and editorial oversight
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