At first glance, it appears that the Indian stock market is downplaying the threat of Trump’s tariffs.
Contrary to widespread apprehensions that US President Donald Trump’s latest tariff threats would trigger a sharp sell-off in the Indian stock market on Tuesday, the domestic market displayed remarkable resilience.
Benchmark indices—the Sensex and the Nifty 50—fell about half a per cent each during the session but pared losses as the day progressed. The Nifty 50 dipped below the 24,600 mark but soon reclaimed the level.
Trump tariffs: How serious is the threat to the Indian economy, markets?
On July 30, Trump announced a 25 per cent tariff on India and said he would also impose a penalty due to India’s energy and defence ties with Russia.
On July 4, Trump launched a fresh salvo. Accusing India of profiting from the Russia-Ukraine conflict, US President Donald Trump on August 4 said he will substantially raise tariffs on Indian goods.
Trump said that India is not only buying Russian oil but also selling it in the open market for significant profits.
“India is not only buying massive amounts of Russian Oil, they are then, for much of the Oil purchased, selling it on the Open Market for big profits. They don’t care how many people in Ukraine are being killed by the Russian War Machine. Because of this, I will be substantially raising the Tariff paid by India to the USA,” Trump wrote on Truth Social.
Trump’s tariffs may not have a deep impact on the overall market. Rather, they are expected to affect select sectors such as textiles, pharmaceuticals, electronics, agriculture, and machinery exports.
India is a domestically driven economy, so tariffs are unlikely to hit the economy significantly.
“The fact that India is a domestically driven economy with exports of merchandise and services accounting for 21 per cent of GDP as of FY25, should offer some comfort. Furthermore, the share of merchandise exports alone is lower at 11 per cent of GDP. Not only is India’s overall export dependence relatively low, but its merchandise export exposure to the US is also low at around 2 per cent of GDP, offering additional resilience,” said CARE Ratings.
“Factoring in the higher reciprocal tariffs and additional penalty on India’s exports to the US, we estimate the potential direct impact on India’s GDP to be around 0.3-0.4 per cent,” the ratings agency said.
Moreover, India could try to offset the impact of tariffs on its goods exports by redirecting them to other countries.
While the direct impact is manageable, the bigger challenge is a global trade slowdown, which can affect exports and corporate earnings.
“Direct impact is limited as India isn’t a primary target. But a broader global trade slowdown could weigh on exports and earnings. Risk-off sentiment can also indirectly impact Indian equities. Trump’s 25 per cent tariffs on Indian exports present a near-term headwind for the equity market. The move could damage India’s growth prospects, limiting foreign portfolio inflow and contributing to near-term volatility,” said Jashan Arora, Director at Master Trust Group.
Is the Indian stock market downplaying the Trump tariff threat?
The Indian stock market is still hoping that Trump will eventually reduce tariffs on Indian goods to 15–20 per cent.
However, a key risk that the market may be ignoring is Trump’s unpredictability. More than the tariffs, Trump’s unpredictability is the key risk for the market that appears to be being overlooked at this juncture.
“The Indian market may be underestimating the risks posed by Trump’s unpredictability,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
Vijayakumar underscored that in market analysis, we often differentiate between known unknowns—risks we’re aware of but can’t fully quantify—and unknown unknowns—risks we can neither predict nor prepare for. Trump straddles both categories.
“While he is a known figure, his actions remain highly unpredictable, making him effectively an unknown-unknown for investors,” Vijayakumar said.
The market is currently ignoring the threat of Trump’s tariffs, as it believes such a scenario is unlikely to materialise—since it would not be in the interest of the United States either.
However, if Trump suspends trade negotiations with India and decides to raise tariffs on India by another 20-25 per cent, the market will experience a sharp selloff.
“If an additional 20-25 per cent tariff is announced and the Nifty’s support of 24,500 is broken decisively, the market may crash. The market may see a fall of 5-6 per cent easily,” said Vijayakumar.
“Investors should remain invested, but this is not the time to buy in the market. One can consider putting some money in gold and fixed income,” Vijayakumar said.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
