RBI Holds Repo Rate at 5.50%, But Tariff Jitters Drag Markets Down

The Reserve Bank of India (RBI) delivered a dose of policy stability on Wednesday, but it wasn’t enough to soothe a market rattled by global trade tensions. In a widely expected decision, the RBI’s Monetary Policy Committee (MPC) kept the key repo rate unchanged at 5.50%. However, this was overshadowed by persistent fears of a trade dispute with the US, causing benchmark indices to end the day with significant losses.

On August 6, 2025, the Indian stock market closed a volatile session in the red. The BSE Sensex fell 166.26 points (0.21%) to close at 80,543.99, while the NSE Nifty50 dropped 75.35 points (0.31%) to settle at 24,574.20. The session was a classic case of global headwinds overpowering domestic stability.

RBI Policy: A Dovish Pause Amid Global Uncertainty

The MPC, led by RBI Governor Sanjay Malhotra, voted unanimously to maintain the status quo on interest rates. The decision was largely in line with market expectations. The central bank’s commentary struck a tone of cautious optimism, holding its GDP growth forecast for the fiscal year 2025-26 steady at 6.5%.

More encouragingly, the RBI offered a pleasant surprise on the inflation front, sharply lowering its projection for FY26 to 3.1% from an earlier estimate of 3.7%. The bank attributed this optimistic revision to softening food prices, a favourable monsoon, and healthy foodgrain reserves. Under normal circumstances, lower inflation and steady growth would be a recipe for a market rally.

However, the elephant in the room was the renewed threat of tariffs from the United States. Concerns that the US could impose fresh tariffs on Indian goods, particularly targeting the crucial pharma and IT sectors, created a sense of unease that the RBI’s positive domestic outlook couldn’t dispel.

As Vinod Nair, Head of Research at Geojit Financial Services, noted, “Despite renewed trade tensions—stemming from the U.S.—the domestic market remained resilient, holding firm near the key support level of 24,500. The pharma sector underperformed, emerging as a notable casualty of the tariff warnings.”

Market Reaction: Sectoral Sell-off Led by IT and Pharma

The market’s response to the day’s events was swift and decisive. After a brief period of volatility following the 10 AM policy announcement, the indices began a steady slide. The selling pressure was concentrated in the very sectors most vulnerable to US tariffs.

The Nifty Pharma index was the hardest hit, tanking over 2%. The Nifty IT index followed closely, dropping 1.74%. The Nifty Realty index also witnessed significant selling pressure, falling 1.51%.

Heavyweight stocks such as Sun Pharma, Tech Mahindra, HCL Technologies, and Infosys were among the top laggards on the Sensex, indicating genuine investor concern about the potential impact of trade barriers on the earnings of these export-oriented companies.

Interestingly, not all sectors bled. The Nifty PSU Bank index managed to close in the green with a gain of 0.59%, suggesting that some investors found relative safety in state-owned lenders amid the external uncertainty.

Key Takeaways for Indian Investors

For retail investors, today’s market action offers several important lessons:

1. Global Cues Dominate: The market has clearly signaled that its primary concern right now is global trade friction. While the RBI’s policy is a domestic positive, the market is currently more focused on external threats. Keep a close watch on developments related to US-India trade relations.
2. Sectoral Rotation is Evident: The sharp divergence between the performance of the IT/Pharma sectors and the PSU Banking sector is a textbook example of sectoral rotation. Capital flows out of sectors facing headwinds and into those that appear relatively sheltered.
3. Technical Levels Matter: Market analysts are highlighting crucial support levels for the Nifty50, particularly around the 24,500 mark. As noted by Nagaraj Shetti of HDFC Securities, the market could test the 24,500 to 24,400 levels in the coming sessions. A decisive break below this zone could signal further weakness.

Looking Ahead: Key Factors to Monitor

The market’s direction in the near term will likely be dictated by a combination of global news and technical levels. Here’s what to keep on your radar:

• US Trade Developments: Any announcements or rhetoric from the US regarding tariffs will be the single most significant market-moving factor.
• Nifty’s Support Zone: Monitor the 24,500 level for the Nifty50 closely. If the index holds this support, a bounce is possible. If it breaks, be prepared for more downside.
• Q1 Earnings Season: We are still in the midst of the earnings season. Company-specific results, especially from the beleaguered IT and Pharma sectors, will be critical.
• Global Market Sentiment: Keep an eye on how US and European markets are performing. Weakness in global markets could further dampen sentiment in India.

Today served as a potent reminder that the stock market is a complex ecosystem driven by a multitude of factors. While a stable domestic monetary policy is a significant advantage, it can be overshadowed by larger, global concerns. For now, the market appears to be in a cautious “wait and watch” mode with a bearish tilt.

This article is for informational purposes only and should not be considered investment advice. Please conduct your own research before making any investment decisions.