Post GST relief, Fed policy, FII flows, U.S.-India trade talks key triggers

The optimism around Goods and Services Tax (GST) reforms has buoyed market sentiment, but the rally now depends on a wider set of macroeconomic triggers, including domestic and international monetary policies, foreign fund flows, and global trade dynamics. This week, equity benchmarks Sensex and Nifty ended higher, rising over 1% each, aided by stronger-than-expected first quarter GDP growth of 7.8% and the GST Council’s move to simplify the tax structure into dual slabs of 5% and 18%.

With the tax overhang out of the way, investors are recalibrating their expectations ahead of the Reserve Bank of India’s upcoming monetary policy review, where inflation management and liquidity guidance will set the tone. In addition, foreign portfolio flows, the U.S. Federal Reserve’s policy stance, and evolving trade relations between Washington and New Delhi are expected to shape the next leg of the rally in the domestic market.

“The coming week will be data-heavy both domestically and globally. On the domestic front, August inflation data (September 12) will be closely tracked, along with bank credit and deposit growth and forex reserves—especially given the recent underperformance of banks,” said Ajit Mishra – SVP, Research, Religare Broking.

Globally, key U.S. data releases—including consumer inflation expectations, PPI, CPI, jobless claims, and consumer sentiment-will be critical in shaping Fed policy expectations and influencing flows. Additionally, any updates on the India-U.S. trade deal could provide further support to market sentiment, Mishra added.

Key market drivers

RBI monetary policy

The upcoming RBI monetary policy committee (MPC) meeting from September 29 to October 1, 2025, will be keenly watched after the central bank kept policy rates unchanged in August. The market experts believe that the domestic growth-inflation mix and the evolving global environment warrants further monetary easing, both globally as well as in India. 

“It is not just the RBI that has paused for now, but several other central banks in Europe, Canada, Australia and so on have hinted at a pause,” Bajaj Broking said in a report.

However, the next round of global easing would happen once the Fed resumes easing. “Once that happens, we expect more rate cuts from the RBI,” the brokerage said.

After three straight interest rate cuts, the RBI unanimously left the repo rate unchanged at 5.5%, while keeping the policy stance ‘neutral’.  

FII and DII trend

The relentless foreign institutional investors (FIIs) selling continues in the first week of September. After pumping out ₹46,903 crore and ₹47,667 crore in August and July, respectively, they have offloaded Indian equities worth ₹5,667 crore in the five days of the first week of September. Overall, they have net sold over ₹2 lakh crore of equities in Indian market.

Market analysts attribute the sustained volatility in foreign flows to global headwinds, including rising U.S. interest rates, a stronger dollar, and relative valuation concerns. However, with India’s macro indicators remaining strong and liquidity conditions supportive, any shift in FII stance from net selling to net buying could emerge as a decisive trigger for the next phase of the market rally.

At the same time, domestic institutional investors (DIIs) have continued their support to Indian equity market with net investments of ₹13,444 crore till date in September. Overall, DIIs have injected over ₹5 lakh crore in the domestic market in CY25 as they remained net buyers in all eight months so far this year. They have been consistently pouring in funds in the equities market since July 2023.

U.S. Fed Policy

Investors globally expect the U.S. Federal Reserve to cut interest rates later this month to support a weakening job market, which added far fewer positions in August than anticipated. At its September 16-17 policy meeting, Fed officials are widely expected to lower the benchmark rate by 25 bps, though some market participants are even pricing in the possibility of a 50 bps cut.

“Market attention remains firmly on the upcoming U.S. jobs report, a key macro trigger that could shape expectations for a potential Fed rate cut. Also, investors will closely track key macro cues, including U.S. nonfarm payrolls, unemployment and inflation data, as well as the ECB’s rate decision, for direction in the week ahead," said Vinod Nair, Head of Research, Geojit Investments.

The U.S. central bank last reduced rates in December 2024, trimming the target range by 25 bps to 4.25%-4.50%.

Trump tariff

U.S. President Donald Trump’s decision to impose a 50% tariff on a wide range of Indian imports has raised significant concerns across India’s export-oriented sectors. Despite the move, Trump has indicted openness to a potential deal, noting that he “gets along well” with Prime Minister Narendra Modi. Modi, in turn, responded to Trump’s remarks on “resetting ties,” saying he “deeply appreciates and fully reciprocates President Trump’s sentiments.”

Going ahead, investors will keep a close eye on ongoing trade negotiations between the U.S. and India. “Looking ahead, sentiment is likely to remain mixed. Domestic growth-linked sectors stand to benefit from GST relief, resilient consumption, and government spending, while uncertainty over global trade negotiations continues to restrain risk appetite,” said Nair of Geojit Investments.

Technical outlook

From its recent low of 24,404, the Nifty staged a recovery amid volatility and closed the week in positive territory. On the weekly chart, it formed a bullish candle with a long upper shadow, signaling selling pressure at higher levels despite the rebound.

For the Nifty index, resistance is placed in the 24,950–25,000 zone, while support is identified around 24,550–24,500, said Sudeep Shah, Head - Technical Research and Derivatives at SBI Securities. A decisive and sustained move beyond either of these levels is likely to set the stage for the next directional trend in the index, he added.

For Bank Nifty, the 54,500-54,600 zone will act as immediate resistance, while support is expected near the 200-day EMA zone of 53,600-53,500. The Bank Nifty index has continued to lag the broader market in recent weeks, with its ratio chart against the Nifty slipping to a 108-day low, underscoring persistent relative underperformance.