New Delhi: India woke up Thursday to the announcement of the new US tariff regime by Donald Trump, with reciprocal tariffs imposed on multiple countries, including India. While global markets have reacted sharply to the development, the response of Indian markets has been rather muted, barring a brief period of volatility initially. Although there has been some decline, Indian indices have been comparatively resilient.
On Thursday morning, BSE Sensex was down by 800 points at 75,811, marking a 1.05 percent decline. NSE Nifty 50 index fell by 182.05 points, opening at 23,150, down by 0.78 percent. But Dalal Street recovered over half of the losses later in the day. Sensex closed at 76,295, slipping 322 points (0.42 percent), while Nifty fell 82.25 points (0.35 percent) to 23,250. Contrary to initial expectations, the market sentiment remained positive, with 2,813 stocks advancing against 1,169 declines.
On Friday, for the second day in a row, Indian indices opened in red. Sensex opened at 75,583, over 700 points lower than its previous close. Similarly, Nifty was 60 points down, opening at 21,190, only to decline further. At 10.20 am, the index was down by 288 points, trading at 22,961.
Among global markets, the downward trends Thursday were steeper—Japan (-2.8 percent), Philippines (-1.63 percent) and Hong Kong (-1.5 percent). The European markets also fell by close to 3 percent.
Besides a baseline duty of 10 percent on all goods entering the United States, the country has imposed an additional duty of 27 percent on India, according to Annex I of Trump’s Executive Order, according to a commerce ministry statement.
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‘Negative short-term impact’
“The short-term impact on the market will be negative. The probability of a US recession by the end of 2025 has increased. Since the tariffs will lead to higher inflation in the US, the Fed will be in a tight spot, unable to cut rates as markets had expected and factored in,” said Dr. V.K. Vijayakumar, chief investment strategist at Geojit Investments Limited.
Sector-wise, IT stocks suffered the most after the tariff announcement amid concerns over a potential economic slowdown in the US due to new tariffs. Heavyweights like Infosys, TCS, Tech Mahindra and HCL Tech plunged over 3 percent Thursday, with Infosys and TCS accounting for the majority of Sensex’s decline. Other weak sectors included auto, metal, and oil & gas, which slipped up to 1.14 percent.
On the upside, utilities, power, pharma, healthcare, and telecom sectors were among the gainers. Pharma stocks, in particular, performed well after select companies received tariff exemptions in the US, boosting the shares of Ipca Laboratories, Lupin, Natco Pharma, Sun Pharma, and Cipla.
However, foreign investors continued selling, offloading Rs 2,806 crore worth of shares Thursday, whereas domestic institutions made net purchases of Rs 221.47 crore.
Even in the run-up to the tariffs being announced, Foreign Institutional Investors (FIIs) had dumped Rs 10,255 crore worth of stocks in two trading sessions. In the period from January to March 2025 alone, foreign investors have shrugged off shares worth Rs 1,22,910 crore.
In March, FIIs picked up significant pace, contributing to a six percent growth in Nifty through the month. The selling trend was reversed in the week ending 28 March 2025, as FIIs became net buyers after 16 consecutive weeks of outflows—the longest streak in 25 years. This shift resulted in net purchases of Indian equities worth Rs 2,014.18 crore for the month, marking their first positive inflow since October 2024.
In FY 2024, FIIs had offloaded $1.3 billion worth of domestic equities, wiping out Rs 75 trillion from India’s market capitalisation.The pulling out of FIIs/FPIs has been a constant ever since the speculations around reciprocal tariffs arose, amid the weakening of the US economy.
However, experts say the tariffs on India might encourage inflows in the longer run.
According to Vijayakumar, Trump’s tariffs will have a negative impact on global trade and global growth. But from the Indian perspective, there are some positives.
He said, “Since the Indian economy is largely domestic consumption-driven, the impact on the Indian economy will be lower than in most large economies. This can lead to capital inflows into India from FIIs. Weakening dollar has always been positive for emerging markets. The ongoing trend of weakening dollar can facilitate inflows into India. Among emerging markets, India has the best macros and growth prospects even in these highly uncertain times.”
Only about 15 percent of Nifty 50 companies have significant export presence, with most relying on domestic demand. This implies low reliance on exports for India. Developing import substitutes and strengthening services exports can aid in countering the tariff impact in the medium-term and attract further investment.
Speaking on the future of trade for India, Sanjay Kathuria, visiting senior fellow at think tank Centre for Social and Economic Progress (CSEP) and co-founder of the Trade Sentinel, said, “India should now look at accelerating its proposed Free Trade Agreements with major countries and regions in the world, and look afresh at Asian countries for stronger trade ties. India must also focus on becoming a trusted supplier and a reliable market to major trading partners because imports and exports go hand-in-hand.”
‘Significant effect on economy unlikely’
Experts say that Trump’s tariffs are unlikely to have a major adverse effect on the economy, which is reassuring for the domestic market. They highlight that India’s exports in the most impacted sectors account for just 1.1 percent of the country’s GDP, minimising potential risks.
According to the office of US Trade Representative, in 2024, India had a trade surplus of $45.7 billion with the US, with total bilateral trade reaching $129.2 billion. India’s trade surplus with the US accounted for 26.5 percent of its total trade surplus in FY 2024.
“The maximum hit to India’s exports to the US is likely to be around $ 3.6 billion, which is only 0.1 percent of India’s GDP,” explained Vijayakumar.
He added that the bigger concern was that these reciprocal tariffs would trigger retaliatory action from other countries, leading to a full-blown trade war impacting global trade and global growth. India’s growth will also suffer in the context of global growth slowdown, making it challenging for India to achieve a growth rate above 6.5 percent in FY26.
Trump’s tariffs may not significantly affect Indian businesses overall, but could impact sectors with high dependence on the US market. These include electronics (15.6 percent), gems and jewelry (11.5 percent), pharmaceuticals (11 percent), nuclear reactor machinery (8.1 percent), and refined petroleum products (5.5 percent).
But experts see this as a key growth opportunity for India as well.
Saurabh Agarwal, Partner & Automotive Tax Leader, EY India, believes the rising US tariffs on automobiles could benefit the electric vehicle segment of India.
He said, “With US automotive tariffs rising, India’s electric vehicle sector has a prime opportunity to capture a larger share of the US market, especially in the budget car segment. China’s 2023 auto and component exports to the US stood at $17.99 billion, while India’s were only $2.1 billion in 2024, highlighting the potential for growth. To accelerate this, the government should enhance the PLI scheme by including more auto components, opening it to new players, and extending it by two years.”
Similarly, the pharmaceutical industry which till now is exempt from the tariffs has a bright opportunity of trade expansion. Vijayakumar said, “From the Indian stock market perspective, the exemption to pharmaceuticals is a positive. The pharma stocks are likely to rally. Domestic consumption focussed sectors will be preferred by investors.”
While analysts agree that reciprocal tariffs for India are much lower than other East-Asian countries, they add that India should now focus on building a mutually beneficial trade agreement with the US.
Kathuria, who strongly advocates for lowering tariffs, said, “India should aim to lower tariffs to boost its trade ties in the longer run. The manufacturing sector in India will face healthy competition, if the India-US bilateral trade agreement is signed. It should welcome such competition because it will improve productivity and efficiency, and provide more certainty of market access.”
Echoing Kathuria’s perspective, Agneshwar Sen, Trade Policy Leader at EY India said, “India must not only negotiate with the US to maintain market access, but also collaborate with FTA partners in Asia to restructure supply chains and seize new opportunities.”
(Edited by Mannat Chugh)
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