Sensex, Nifty: Dollar down, Brent oil below $70 -- what is capping market upside?

Benchmark stock indices Sensex and Nifty opened higher for the second straight session on Thursday, but soon reversed gains. Stocks gained initially as the dollar index declined further and the Trump administration granted one-month exemption to US automakers from tariffs on cars from Mexico and Canada. The drop in Brent futures below $70 a barrel mark also lifted the market sentiment, before the indices slipped into the red. Stocks later fell, as analysts do not see end to the tariff war -- they see a sharp volatility ahead. 

"The history of Trump’s first term suggests he is willing to escalate trade conflicts, despite equity market weakness and volatility. There is likely some degree of market or real economy stress that could cause Trump to back down from tariff threats," Nomura said. 

Trump's actions to date make the foreign brokerage skeptical of a rapid de-escalation, though. 

"Less than two months into his second administration, Trump’s tariff actions have far outstripped anything from his first term. This raises the question of what Trump aims to accomplish with tariffs and what type of market or real economy feedback might cause him to back down and de-escalate. The objectives of these tariffs appear unclear," it said. 

On Thursday, Sensex declined 312.06 points, or 0.42 per cent, to 73,418.17. The 30-pack index was up over 300 points earlier. The NSE Nifty stood at 22,247.35, down 89.95 points or 0.4 per cent.

Tariff pressures will persist through this quarter, Emkay Global warned, as it believes the key to market recovery is earnings stability. The brokerage expects FY26 earning forecasts to be resilient from here on, but feels investors must brace for extreme volatility.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said we are in a highly uncertain and volatile situation for global trade, global economy and markets. The end game of Trump’s tariff policy is unclear, he said.

At times, Trump and his advisors seem to treat tariffs as a negotiating tool, raising the prospect that recent threats are simply an attempt to win policy concessions.

"Trump’s latest declaration granting exemption from recently hiked tariffs to imports of Canadian and Mexican autos indicate that his intention is to negotiate from a position of strength. So deals and settlements are possible but they are not going to be smooth," Vijayakumar warned.

The dollar index declined to 104.30 is positive for emerging markets like India. If this trend persists, the FII selling will soon stop, Vijayakumar said.