Market Rebounds After US Tariff Shock: What's Next for Indian Stocks?

The Indian stock market faced a major geopolitical headwind on Thursday as the United States announced a massive tariff hike on Indian goods. However, Dalal Street demonstrated remarkable resilience, transforming a deep sea of red into a patch of green by the closing bell.

In a move escalating trade tensions, US President Donald Trump’s administration signed an executive order imposing an additional 25% tariff on a range of Indian products. This is on top of an existing 25% duty, effectively doubling the total tariff to 50% for many goods. The initial 25% tariff became effective on August 7, with the second 25% tranche set to apply 21 days later, on August 27.

The White House cited India’s continued import of oil from the Russian Federation as the official reason for this aggressive trade measure. The move was strongly condemned by India, with officials calling it “unfair, unjustified, and unreasonable.”

Market’s Knee-Jerk Reaction and Surprising Rebound

The news sent an immediate chill through the Indian markets at the opening bell. The BSE Sensex plunged, at one point falling over 800 points to an intraday low of 79,811.29. The NSE Nifty 50 slipped below the crucial 24,500 mark, hitting a low of 24,344.15. The mood was decidedly bearish, with export-heavy sectors like textiles, leather, and gems and jewelry bearing the brunt of the sell-off.

However, the session took a dramatic turn. After the initial shock, the market began a steady climb. A combination of last-hour buying, particularly in IT and Pharma stocks, and a potential sentiment that the sell-off was overdone, helped the indices erase their losses.

By the end of a volatile day, the 30-share BSE Sensex had recovered over 800 points from its intraday low to close at 80,623.26, up by 79.27 points or 0.10%. Similarly, the 50-share NSE Nifty clawed back to end at 24,596.15, a modest gain of 21.95 points or 0.09%. This recovery showcased the market’s ability to absorb significant negative news, at least for the time being.

Why the Tariffs? And Which Sectors Are at Risk?

The White House has explicitly linked the tariff hike to India’s energy trade with Russia, placing New Delhi in a difficult position between its long-standing relationship with Russia and its critical trade partnership with the US.

The immediate impact will be felt by Indian exporters whose goods will become significantly more expensive for American buyers, potentially reducing demand. Key sectors that could be affected include:

• Textiles and Apparel: A major export category to the US.
• Gems and Jewelry: Another significant contributor to India-US trade.
• Leather Goods: A sector already facing stiff global competition.
• Marine Products: An important component of India’s export basket.

Reliance Industries, in its annual report, also warned that such “geopolitical and tariff-related uncertainties may affect trade flows and the demand-supply balance.”

What Investors Should Watch Next

For retail investors, this is a time for caution, not panic. While the market’s recovery is a positive sign, the underlying trade issue remains unresolved. Here are a few key developments to monitor:

• Government’s Response: Watch for any retaliatory tariffs or diplomatic negotiations from the Indian government. On Thursday, Prime Minister Narendra Modi stated that India “will never compromise the interests of its farmers, fishermen and dairy farmers.”
• Sectoral Impact: Keep a close watch on the quarterly results and management commentary from companies in the affected sectors. They may provide guidance on how they plan to navigate these tariffs.
• Rupee Movement: The Indian Rupee showed resilience, settling slightly higher at 87.69 against the US dollar, supported by weaker crude oil prices. However, sustained trade pressure could impact the currency.
• FII Activity: Foreign Institutional Investors (FIIs) have been net sellers recently. Their activity in the coming days will be a key indicator of international investor sentiment towards India.

The market has weathered the initial storm, but the trade winds remain turbulent. The coming weeks, especially leading up to the August 27 deadline for the next tariff hike, will be crucial in determining the market’s medium-term direction.

This article is for informational purposes only and does not constitute investment advice. Please conduct your own research before making any investment decisions.