Equity markets slip into red, amid trade deal uncertainty and FII selling pressure

Indian equity benchmarks opened marginally higher on Friday, 4 July, buoyed by positive cues from global markets and strength in banking stocks. However, initial optimism faded quickly as investors turned cautious ahead of a potential trade agreement between India and the United States. The cautionary mood, combined with persistent foreign investor outflows and regulatory developments, weighed heavily on market sentiment.

The BSE Sensex rose 67.34 points in early trade to touch 83,306.81, while NSE’s Nifty edged up 23.55 points to 25,428.85. Yet, both indices soon reversed gains, slipping into negative territory. By mid-morning, Sensex had declined over 400 points to 83,015.83, and Nifty retreated to 25,331.65.

Among the notable early laggards were Trent, Tata Steel, Tech Mahindra and Maruti. Broader market sentiment remained subdued amid global trade uncertainties. Investors reacted to comments from US president Donald Trump, who said his administration would issue tariff letters to trading partners on Friday, outlining duty rates ranging from 60–70 per cent and 10–20 per cent.

These tariffs are scheduled to take effect from 1 August. While agreements have already been reached with the UK and Vietnam, and a temporary understanding is in place with China, traders remained on the sidelines ahead of the 9 July deadline.

"Domestic equity markets have continued to consolidate this week after a sharp 15 per cent rally over the past four months, as investors remain watchful of a potential trade agreement," said Vinod Nair, head of research at Geojit Financial Services.

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Another factor dragging markets lower was sustained selling by foreign institutional investors (FIIs), who offloaded equities worth Rs 1,481.19 crore on Thursday, 3 July, according to data from the exchanges. Continuous FII outflows tend to exert pressure on the domestic market, signalling global risk aversion.

Adding to the cautious sentiment was a regulatory move by the Securities and Exchange Board of India (SEBI), which barred US-based trading firm Jane Street from participating in Indian equity markets. The decision sparked a sell-off in shares of capital market-related firms, prompting concerns over increasing regulatory scrutiny in the sector.

"While the order could stir some short-term unease, it's clearly case-specific and unlikely to trigger a broad foreign investor exit," noted Kranthi Bathini, director – equity strategy at WealthMills Securities.

Commenting on the technical outlook, Anand James, chief market strategist at Geojit Financial Services, said, "Although markets attempted an upswing, resistance near the 25,588 level curtailed gains, resulting in a pullback and a retest of the previous day’s low." He added that Nifty could drift towards the 25,300 mark — a level Geojit had forecast earlier in the week.

James also noted that short-term technical indicators appeared oversold, suggesting the potential for a rebound unless the index slips below 25,377, the 10-day simple moving average. A breach of that level, he cautioned, might open the door to a decline towards 25,000.

As global trade tensions simmer and foreign investor sentiment remains cautious, markets are likely to remain volatile in the days leading up to the anticipated trade agreement deadline.