The global trade landscape took a major hit as US President Donald Trump announced reciprocal tariffs on over 180 countries, including a 26% tariff on India. This move has sparked concerns about its impact on the Indian stock market, particularly in sectors that heavily rely on exports to the US. Let’s break down what this means for investors and businesses.
Trump’s Tariff Shockwave
On April 2, Trump rolled out a new tariff policy that includes a 10% baseline tariff on imports and reciprocal tariffs at half the rate other countries impose on US goods.
The announcement sent shockwaves through global markets, with Dow Jones Futures tumbling over 1.5%. India was hit with a 26% tariff on its exports to the US, while a 25% tariff on automobile imports is set to impact major Indian auto stocks like Tata Motors and Samvardhana Motherson.
How Will the Indian Stock Market React?
Markets don’t like uncertainty, and Trump’s announcement has already caused a stir. Gift Nifty dropped 1.5%, reflecting immediate concerns. However, experts believe that while sectors like IT and automobiles may face short-term selling pressure, the overall market will likely absorb the impact over time.
India’s trade surplus with the US isn’t massive. According to the India Brand Equity Foundation (IBEF), India had a trade surplus of $36.8 billion with the US in FY24. Indian exports to the US stood at $77.5 billion, while US exports to India were $40.7 billion.
What Experts Say
Despite the tariffs, experts believe that India is still in a better position compared to other countries like China, Taiwan, Sri Lanka, and Bangladesh, which are facing even steeper trade restrictions.
“The 26% tariff on India isn’t excessive compared to other nations. While the market might react negatively in the short term, a possible bilateral trade agreement between India and the US could ease these tariffs,” analysts suggest.
The Indian stock market typically reacts negatively to US protectionist policies, as they increase global risk aversion. Foreign Portfolio Investors (FPIs) may reduce their exposure to emerging markets, leading to volatility. Additionally, a weaker rupee could fuel imported inflation, impacting companies with high foreign debt.
Major Sectoral Impact
While the tariffs won’t affect all Indian businesses equally, sectors with high exposure to the US market are likely to feel the heat.
Top Indian exports to the US:
- Electronics (15.6%)
- Gems and jewelry (11.5%)
- Pharmaceuticals (11%)
- Machinery for nuclear reactors (8.1%)
- Refined petroleum products (5.5%)
“While Trump’s reciprocal tariffs are a concern for India Inc., their impact will be more sector-specific rather than a broad-based issue,”
“Higher import tariffs will mainly affect US-centric businesses in sectors like pharma, iron and steel, electronics hardware, and auto parts,” he adds.
According to experts, India’s exports in the most vulnerable sectors amount to only 1.1% of India’s GDP, suggesting that while sectoral disruptions may occur, the overall economic impact may be contained.
Final Thoughts
While Trump’s tariff policy has created uncertainty, its long-term impact on India’s economy may not be as bad as it seems. Strong domestic demand, diverse trade partnerships, and potential diplomatic talks could help cushion the blow.
That said, short-term market volatility is inevitable, and investors should keep a close watch on sectoral developments before making any big moves.
Disclaimer: This article is for educational purposes only. The views and recommendations expressed above are those of individual analysts or brokerage firms . We strongly advise investors to consult certified financial experts before making any investment decisions, as market conditions can change rapidly.
To receive your copy of FREE eBook on Financial Freedom Subscribe Here
This blog is purely for educational purposes. Mutual fund investments are subject to market risks, read all scheme-related documents carefully.
