Key Developments for the Month of August 2026

August turned out to be a more difficult month for Indian equities after the strong recovery seen in July. Corporate earnings remained supportive and domestic institutions continued their net buying in the Indian equity markets, but the market had to deal with volatile crude oil, higher inflation and fresh uncertainty over interest rates. Precious metals recovered strongly during the month, while developments around Iran and the Strait of Hormuz continued to influence currencies, commodities and bond markets.

Indian Equities Lose Some of July’s Momentum

Through August 31, the last completed trading session of the month at the time of writing, the Nifty 50 stood at 24,080.40, down 1.24% from its July close. The Sensex was down 1.46% at 76,957.27. 

The underlying market was relatively stronger. Mid cap and small cap shares held up better than the headline indices during parts of the month, helped by earnings and steady domestic buying.

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Institutional flows were an important source of support. Provisional cash market data through August 28 showed FIIs with net purchases of just ₹454.04 crore for August, while DIIs bought ₹53,679.27 crore. The gap illustrates how domestic money continued to absorb periods of foreign selling.

The newly introduced closing auction mechanism also came under attention after large swings in indicative closing prices around the monthly derivatives expiry.

RBI Holds Rates as Inflation Moves Higher

The Reserve Bank of India kept the repo rate unchanged at 5.25% at its August policy meeting and retained a neutral stance. The decision reflected the need to balance fairly steady domestic growth against renewed inflation risks.

The RBI projected FY27 economic growth at 6.7% and inflation at around 5.0%. Its policy minutes, released later in August, drew greater attention because some members indicated that a rate increase could become necessary if inflation remained elevated.

Retail inflation had already started moving higher. India’s CPI inflation rose to 4.45% in July from 4.38% in June, while food inflation increased to 5.52%. The rise kept the market focused on the possibility that higher food and fuel costs could delay any easing in monetary conditions.

Industrial Output and Forex Reserves Offer Support

India’s industrial economy continued to expand at a healthy pace. Data released on August 28 showed industrial production rising 6.7% YoY in July. Manufacturing output increased 7.3%, while electricity production grew 8.7%. Capital goods output rose a much stronger 16.1%, indicating continued demand for machinery and investment-related goods.

India’s external buffers also strengthened during the month. Foreign exchange reserves reached a record $729.33 billion in the week ended August 21 after rising for eight consecutive weeks.

S&P Global Ratings added another positive macro development on August 27 by affirming India’s sovereign rating at BBB/A-2 with a stable outlook. The agency pointed to policy stability and infrastructure investment as factors supporting growth. It expects real GDP growth of around 6.6% in 2026, although high public debt and fiscal pressures remain constraints.

Crude Oil Remains Tied to the Iran Conflict

Oil prices continued to respond sharply to every change in the US-Iran conflict. Brent moved lower early in August as diplomatic efforts raised hopes of improved shipping through the Strait of Hormuz. Those expectations repeatedly faded as military and political tensions resurfaced.

By August end, Brent crude settled around $90 per barrel. Prices had fallen around 2% during that week as traders assessed possible progress on arrangements concerning the Strait of Hormuz and the outlook for US interest rates.

The Strait remains important because roughly one-fifth of global oil supplies normally pass through the route. For India, prolonged crude prices near $90 remain a concern because they can raise the import bill, add to inflation and put pressure on the rupee.

Gold and Silver Make a Strong Comeback

Precious metals were among the stronger asset classes in August. Gold had suffered a sharp correction earlier in 2026, but buying returned as the dollar weakened and expectations around US interest rates softened during the first half of the month.

Gold jumped 4% on August 5 to $4,247 per ounce, its biggest daily gain since February. Silver rose by an identical 4% to $62 per ounce.

The rally gathered pace. By August 17, gold had recovered roughly 9% during the month, and it reached a three-month high of $4,696.18 on August 25.

The final sessions were weaker. Gold fell more than 3% to $4,567.23 on August 28, while silver dropped 3.5% to $66.81 after markets increased bets on another US rate hike.

Jackson Hole Changes the Rate Debate

US inflation remained stubborn. The Federal Reserve’s preferred PCE inflation measure rose 3.7% YoY in July, while core PCE inflation remained at 3.3%, according to the US Bureau of Economic Analysis.

The bigger market reaction came after Federal Reserve Chair Kevin Warsh spoke at Jackson Hole on August 28. He reiterated the Fed’s commitment to bringing inflation back towards its 2% target and indicated that further action could be required if price pressures failed to ease.

Rate expectations changed quickly. Markets raised the probability of a September rate increase from around 36% to close to 60%. The dollar and short-term US Treasury yields moved higher, while gold, equities and other rate-sensitive assets came under pressure.

Technology stocks had some support from Nvidia’s quarterly results. The company reported revenue of $96.2 billion, up 106% YoY, with data centre revenue reaching $89 billion. Strong numbers from the AI chipmaker helped the Nifty IT index rise 3.5% on August 28.

Conclusion

August was shaped less by one dominant event and more by the interaction between oil, inflation and interest rates. Indian equities lost some ground, but strong domestic institutional buying, industrial growth and record forex reserves provided stability. Gold and silver recovered sharply before giving up part of their gains after Jackson Hole. As September begins, crude oil, US and Indian interest rate expectations and the direction of institutional flows remain the main factors to watch.