US Tariff Shock: Indian Markets Plunge, Then Stage Dramatic Recovery

The Indian stock market experienced a day of extreme volatility on Thursday, July 31, 2025. A surprise announcement from US President Donald Trump about imposing a 25% tariff on Indian goods sent benchmark indices into a nosedive. However, a dramatic second-half recovery erased a large portion of the losses, showcasing the market’s resilience.

An 800-Point Plunge at the Opening Bell

The trading day began with a significant shock as markets opened sharply lower, reacting to the overnight news from the US. The BSE Sensex plunged nearly 800 points to an intraday low of 80,695.15, while the NSE Nifty 50 fell over 200 points (almost 1%) to an intraday low of 24,635.

The initial panic selling was intense and broad-based. In the first 15 minutes of trading, investor wealth worth over ₹5 lakh crore was eroded as the total market capitalization of BSE-listed firms took a substantial hit. The sell-off was more pronounced in the broader market, with mid-cap and small-cap indices falling by up to 2%.

The Catalyst: A 25% Tariff Shock

The market turmoil was triggered by a social media announcement from US President Donald Trump. He declared that the US would impose a 25% tariff on most goods imported from India, effective August 1. The announcement also mentioned an “unspecified penalty” related to India’s trade relationship with Russia, particularly concerning oil and weapons purchases.

This move caught the market by surprise, with analysts immediately flagging the potential damage to India’s export-oriented sectors. The hardest-hit sectors included:

• Textiles: Stocks like Welspun Living and Vardhman Textiles declined sharply.
• Pharmaceuticals: The Nifty Pharma index fell over 1.5% as companies with significant US exposure faced potential margin pressure.
• Auto Components & IT: These sectors also saw significant selling due to their high export dependence on the US.

The Indian Rupee also came under pressure, opening at a five-month low of 87.69 against the US dollar, reflecting concerns about potential capital outflows.

Defensive Stocks Lead a Dramatic Mid-Day Reversal

Just when it seemed the market was set for a deeper correction, it staged a remarkable recovery. From its intraday low, the Sensex rallied over 1,100 points, clawing back a majority of its losses.

This fightback was led by the defensive FMCG sector. While most of the market was in the red, the Nifty FMCG index was a notable outlier, gaining nearly 2%. Heavyweights like Hindustan Unilever (HUL) and ITC attracted safe-haven buying. HUL, in particular, jumped nearly 4% after announcing its Q1 results, which revealed a 6% rise in net profit, providing a much-needed boost to market sentiment.

By the closing bell, the indices had recovered significantly. The BSE Sensex closed at 81,185.58, down 296.28 points (0.36%), and the NSE Nifty 50 settled at 24,768.35, down 86.70 points (0.35%). While the market ended lower, the sharp recovery from the day’s lows was the defining story of the session.

What to Watch Next

This volatile session has set a cautious tone for the market. For retail investors, it is a time for vigilance rather than hasty decisions. Here are a few key factors to monitor:

• Government Response: The official response from the Indian government will be crucial for calming market nerves. Diplomatic negotiations could ease the situation.
• Nifty’s Key Support: The Nifty 50 briefly dipped below the 24,650 mark. Experts believe holding the 24,600 level is vital to prevent further downside.
• FII Activity: Foreign Portfolio Investors (FPIs) have been recent net sellers. The tariff news could accelerate this trend. Monitoring their flow data will be important.
• Currency Movement: Keep a close watch on the USD/INR exchange rate. A continuously weakening rupee could exert further pressure on the market.

Thursday’s session was a classic example of how geopolitical events can rattle financial markets, serving as a stark reminder of the importance of diversification and maintaining a long-term investment horizon.

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