August, 2026

One step forward, two steps back

Mohit Dugar, CFA || ARN - 314375

For the past three months, there is only one topic that seems to oscillate again and again – when will the war get a decisive outcome. Every time there seems to be a breakthrough, all the situations circle back to square one again. President Trump said, US-Iran MoU signed in June was over at the start of July, then making a complete U-turn by the end of July, President Trump again announced the cessation of hostilities. Oil made wild swings as the markets were confused whether the war is ongoing or has halted. First, it receded then it started gaining. So, essentially, no progress seems to have been made – it is one step forward and two steps back.

Iran targeted several US facilities in the Gulf region re-igniting tensions. Iran also attacked Saudi Arabian oil facilities. Yemen backed Houthis had blocked the Red Sea, imposing a naval blockade on Saudi Arabia – trying to corner of Saudi Arabia from all sides. US and Saudi Arabia have announced a civil nuclear deal, but its future is uncertain because President Trump conditioned final approval on Saudi Arabia joining the Abraham Accords to normalize ties with Israel.

In international news, FED in its latest FOMC meet has kept the rates steady at 3.5%-3.75%; US GDP growth has moderated to 1.5% in Q2 of current fiscal; US initial jobless claims fell by 22,000 to a seasonally adjusted 187,000 in the week ended July 18, well below economists' expectations of 212,000, signalling continued resilience in the labour market; President Trump has brought generic drugs into the tariff framework for the first time, proposing zero tariffs from August 1, 2026, followed by 100% from August 2028 and 200% from August 2029. The move is aimed at pushing pharmaceutical companies to re-shore manufacturing to the US; The US has imposed a 10% Section 301 tariff on imports from India as part of its forced-labour investigation, while 43 other economies, including China, Vietnam and Thailand, face a higher 12.5% tariff. Around 70% of India’s exports including engineering goods, textiles, chemicals, machinery, plastics, leather products, gems and jewellery, and furniture will be subject to the additional 10% tariff, although India did not receive the textile and apparel tariff-rate quota (TRQ) exemption

China's economy grew 4.3% year-on-year in the second quarter of 2026, slowing from 5.0% in the previous quarter and missing market expectations of 4.5%. The weakest growth since Q4 2022 reflected soft domestic demand, weak private investment and a prolonged property downturn, despite resilient AI-related exports, increasing expectations of further policy support; the European Central Bank (ECB) kept its key interest rates unchanged at its July meeting after a 25-basis-point hike in June. The decision reflects easing inflation, slower wage growth, softer economic activity, and moderating inflation expectations, reducing the need for an immediate rate increase; Global chip stocks came under pressure after China announced it had developed its own immersion deep ultraviolet (DUV) lithography machines, challenging the near-monopoly of ASML in advanced chipmaking equipment. The news triggered a broad selloff across semiconductor stocks, with ASML plunging over 7%, while weighing on major chipmakers such as Advanced Micro Devices and Nvidia.

On India front, India's merchandise trade deficit widened 59% YoY to $30.43 billion in June, as exports fell to $40.41 billion while imports stood at $70.84 billion; The Union Cabinet has approved the second phase of the India Semiconductor Mission (ISM) with an outlay of ₹1.27 trillion and the second phase of the Mobile Phone Manufacturing Scheme with an allocation of ₹62,500 crore; India and Australia have signed a civil nuclear deal, securing supply for uranium.

On the macro front, India’s retail inflation, measured by the CPI, accelerated to 4.38% in June crossing the RBI’s 4% medium-term target; IMF trims India’s growth forecast by 0.1% to 6.4% for FY27, citing high crude prices; India’s industrial production grew 7.3% YoY in June, beating market expectations of 6% and marking its fastest growth in 23 months, led by strong performance in manufacturing, capital goods, and infrastructure. Manufacturing output rose 7.8%, while electricity and gas production increased 10.6%, reflecting resilient domestic demand and higher industrial activity.

FPIs have been net sellers of Indian equities over the past few years. After outperforming EMs (Emerging Market) peers on a USD basis over 10 Years (Jun-15 to Jun-25), India has underperformed over the last one year as EM returns became concentrated in markets which are beneficiaries of AI theme, mainly Korea and Taiwan. India has low direct exposure to AI revenues and lower sensitivity to US interest rates than Korea and Taiwan.

India’s economy remained firmly supported during the West Asia conflict, with consumption, industrial activity, tax collections and investment indicators continuing to grow, despite elevated commodity prices. Earlier policy measures - including income tax cuts, GST reforms and RBI rate reductions, relatively helped sustain domestic demand and cushion the economy from external shocks. Once the AI-led trend fades, these characteristics support India’s case within EM allocations. We recommend deploying capital in a staggered way and getting fully invested by Q3FY27. Bull rally now looks in sight. Stay patient and stay invested!

www.pinnaclefinvest.com

mohit@pinnaclefinvest.com

​​​

​Unsubscribe​