Indian Markets Tread Cautiously as Global Trade Tensions Simmer; IT and Metals Shine

Dalal Street opened Wednesday, July 2, with a familiar sense of caution as investors navigated a largely flat market. While the broader indices remained muted, select sectors displayed notable strength amidst evolving global cues.

At 9:15 a.m. IST, the Sensex edged up by 134.81 points (0.16%) to 83,832.10, and the Nifty gained 39.35 points (0.15%), reaching 25,581.15. The Nifty Midcap 100 saw mild losses, while the Nifty Smallcap 100 managed to eke out minor gains, reflecting the subdued sentiment across broader markets.

Tech and Metals Lead the Charge

The Nifty IT index emerged as a top performer, fueled by positive commentary from U.S. Federal Reserve Chairperson Jerome Powell. Powell's remarks, indicating a willingness to trim benchmark lending rates absent trade tariffs, spurred a dovish sentiment. This, coupled with a weakening dollar, made IT stocks an attractive bet for investors.

Similarly, the declining dollar provided a significant boost to metal stocks, which rallied sharply. Conversely, sectors like FMCG, PSU Bank, and media indices found themselves in the red.

"Hopes for a Fed rate cut are certainly on the rise, but investors should exercise caution," warned Prashanth Tapse, Senior VP (Research) at Mehta Equities. "Any cuts now might signal underlying economic weakness—think sticky inflation, lower GDP, rising unemployment, and flagging consumer confidence—rather than a robust economy."

US-India Trade Deal Hopes

Adding another layer to the market dynamics, U.S. President Donald Trump expressed optimism about finalizing a trade agreement with India. He emphasized that the forthcoming deal would significantly reduce tariffs, fostering fairer competition between the two nations.

“I think we are going to have a deal with India. And that is going to be a different kind of a deal. It is going to be a deal where we are able to go in and compete,” Trump remarked, hinting at the potential for a mutually beneficial pact.

Institutional Investors: DIIs Buy, FIIs Sell

Provisional figures from the National Stock Exchange for July 1, 2025, revealed divergent trends in institutional flows. Domestic Institutional Investors (DIIs) were net buyers, injecting Rs 1,970 crore into the market. Meanwhile, Foreign Institutional Investors (FIIs) registered net sales of Rs 771 crore, indicating a cautious stance from foreign players.

Global Markets React to Trade Tensions

Global markets largely mirrored the prevailing cautious sentiment, particularly in Asia, where indices slipped after President Trump reaffirmed his July 9 deadline for hiking tariffs on trading partners. This reignited concerns over escalating global trade tensions.

In the U.S., both the Nasdaq and S&P 500 ended their sessions in the red, weighed down by a decline in major tech stocks. However, the Dow Jones Industrial Average bucked the trend, closing higher in a truncated holiday-week trading session. The Dow climbed 0.91%, while the S&P 500 dipped 0.11%, and the Nasdaq Composite fell 0.82%.

Technical Levels and Options Outlook

From a technical perspective, Devarsh Vakil, Head of Prime Research at HDFC Securities, noted, "Looking ahead, the level of 25,450 is expected to act as crucial short-term support, while 25,670 could offer immediate resistance as the index navigates this consolidation phase."

On the derivatives front, there's a clear shift in sentiment. Call writers are becoming increasingly dominant at higher levels, signaling growing supply overhead. Conversely, Put writers have held their ground, especially at strategic support levels, hinting at expectations for a gradual upward bias.

"The 25,600 strike continues to witness the highest call open interest, with 1.29 crore contracts, establishing it as the key hurdle in the near term. On the downside, the 25,500 put strike has garnered significant open interest of 1.16 crore contracts, reinforcing it as a solid support level," explained Dhupesh Dhameja of SAMCO Securities.