The Indian stock market is currently navigating a complex scenario marked by a stalled India-US trade deal, persistent FPI (Foreign Portfolio Investor) selloffs, and a slowdown in corporate earnings growth. This "triple whammy" is creating uncertainty and volatility, requiring investors to adopt a cautious and strategic approach.

Stalled India-US Trade Deal

Hopes for an interim trade agreement between India and the United States before the August 1 deadline are dimming due to disagreements over tariff reductions, particularly on agricultural and dairy products. India is hesitant to open these sectors, while the U.S. seeks relief from higher tariffs on steel, aluminum, and automobiles. Agriculture remains a major sticking point, with India resisting opening up the sector to protect domestic farmers. The U.S., however, is keen on this, as it would set a precedent for future deals with the EU and Japan. While an interim deal looks difficult, both countries are still in discussion and officials are optimistic about clinching a broader deal by September or October.

The uncertainty surrounding the trade deal is weighing on market sentiment. A failure to reach a favorable agreement, with tariffs below 20%, could negatively impact the market in the short term. Concerns are rising that a prolonged trade war could significantly dent global growth prospects.

FPI Selloff

Foreign portfolio investors have turned net sellers of Indian equities after a four-month buying spree. In July 2025, FPIs have offloaded stocks worth ₹5,826 crore. While this selling has not significantly dented the benchmark indices, it has stalled the upward trajectory of the Indian stock market. Sectors like IT, FMCG, consumer durables, autos, and healthcare have seen heavy selling, with FPIs rotating capital towards services, capital goods, metals, oil & gas, and financials.

Analysts believe that FPI flows are likely to remain selective and event-driven in the near term, influenced by global macro volatility, US rate trajectory, and trade dynamics. Despite net outflows of over ₹83,700 crore in 2025 so far, the Sensex has gained 5%, highlighting the reduced clout of FPIs and the growing resilience of domestic markets.

Earnings Slowdown

Early Q1 results indicate a slowdown in revenue and profit growth for Indian companies. Nifty 50's earnings growth has moderated from a 24% CAGR to mid-to-high single digits. Banking and finance companies have reported weak numbers amid pressure on net interest margins and lower credit offtake. The IT sector is also experiencing slower earnings growth. Experts believe that this earnings slowdown, coupled with high valuations, is creating market uncertainty.

Trading Strategy

Amid this "triple whammy," investors need to adopt a strategic approach:

• Be selective: Focus on bottom-up stock picking, where earnings surprises will be key drivers. Favor sectors aligned with capex, manufacturing, and domestic consumption themes.
• Monitor global cues: Pay close attention to global macro volatility, US rate trajectory, and trade dynamics.
• Consider domestic strength: India's relative macroeconomic strength, policy continuity, and earnings visibility provide a strong long-term case for renewed allocations. The robust domestic institutional and retail participation is increasingly cushioning the impact of foreign selling.
• Stay cautious: Elevated valuations in some segments warrant caution. Be prepared for potential volatility and corrections.
• Long-term perspective: India's fundamental story remains strong, making it an "add-on dips" market for long-term investors.

While the Indian stock market faces headwinds from a stalled trade deal, FPI selloffs, and an earnings slowdown, its underlying resilience and long-term growth potential remain intact. By adopting a selective and cautious approach, investors can navigate the current market volatility and capitalize on future opportunities.