In a dramatic policy pivot late Friday, US President Donald Trump unveiled a fresh 10% global tariff to replace the levies struck down by the US Supreme Court. Branding the ruling “terrible”, he took aim at the judges who had rejected his trade policies. Barely 24 hours later, on Saturday night, the President escalated matters, raising global tariffs from 10% to the maximum permissible 15% and describing the court’s verdict as “extraordinarily anti-American”. He also signalled that his administration would explore other legally permissible tariff options in the months ahead.
The initial 10% levy had sparked hopes of a mildly positive reaction in Indian equities, reflected in a quick 1% pop in Gift Nifty soon after Friday’s announcement.
That relief, however, now appears fragile. But that relief now looks fragile. The swift escalation to 15% and the prospect of additional tariff measures have injected fresh uncertainty, suggesting that any relief rally could prove shortlived, tempering optimism and keeping investors on the edge.
“We were pricing in stabilization of growth and easing pressure on foreign outflows post the announcement of the trade deal in the first half of the month, but the (US’s) SC development brings back uncertainty,” said Shravan Sreenivasula, executive director – investment solutions at Avendus Wealth Management.
Investors should brace for policy unpredictability around tariff rates and possible re-negotiations on the India-US trade deal, he added.
According to Trideep Bhattacharya, president and chief investment officer of equities at Edelweiss Asset Management, “The immediate reaction to the Supreme Court ruling is likely to be relief—after all, a 15% tariff is far better than 18%,” he said. “But in relative terms, India’s competitive edge over other countries has effectively been neutralized.”
Given the latest developments, Bhattacharya expects the India-US trade deal to be revisited. The bigger question, he says, is what more could Trump do, including the possibility of another round of tariffs.
India’s commerce and industry ministry on Saturday said it has noted the US court judgement on tariffs, the President’s press conference on it, and some steps announced by the administration. “We are studying all these developments for their implications,” the ministry said in a statement.
After this, some reports said India and the US have decided to defer the proposed meeting of their chief negotiators in Washington, slated to start on 23 February, to finalize the interim trade pact. Both sides agreed to reschedule the visit to allow time to assess the latest developments and their implications, with fresh dates to be decided mutually, the reports said.
Bhattacharya believes the tariff issue may drag on longer than expected, potentially stretching up to the US mid-term elections, slated for November 2026.
With tariffs now trimmed to 15% from 18%, sectors such as auto ancillaries and wires and cables could see an immediate positive. In the near term, select sectors could enjoy a tactical tailwind, as a lower tariff rate will help ease cost pressures and sharpen their competitive edge.
Just when India was beginning to look attractive, backed by new free trade agreements (FTAs) and progress on the US trade deal, a fresh concern over foreign money pivoting back to the US following the Supreme Court ruling has emerged.
Tariff is, however, only one variable in a much broader equation. Factors such as earnings recovery, a pickup in consumption, the pace and quality of capital expenditure, artificial intelligence (AI) adoption trends, the rollout of the 8th Pay Commission, and how the monsoon would play out are all critical in shaping market direction, says Sreenivasula of Avendus.
As far as Q3FY26 earnings were concerned, Elara Capital’s coverage universe delivered 17% year-on-year growth in profit after tax, with a 7% sequential expansion. “For the first time in the past many quarters, double-digit revenue growth was visible across cap segments, signalling demand pick up aided by fiscal reforms and easier liquidity,” noted a 20 February report by the brokerage.
AI frenzy
“US outflows are on concerns of AI (artificial intelligence) exuberance and bottoming out of rate action from Fed which continue even now,” Sreenivasula said.
For some time now, global markets have been driven by a big theme: AI, which has reshaped capital flows, investor sentiment and asset allocation worldwide.
With limited exposure to semiconductors, data centres, AI infrastructure or foundational models, India has so far remained relatively outside the AI trade tizzy, market participants said, adding that this had partly contributed to persistent foreign capital outflows despite strong domestic fundamentals. If the AI frenzy eases, India could find its way back into favour with large global allocators looking to rebalance their portfolios, they said.
After two straight months of heavy selling, FIIs have turned net buyers in February so far, having pumped in ₹16,911.55 crore. This inflow comes after net outflows of ₹22,638.82 crore in December and ₹31,393.08 crore in January, NSDL data shows.
The Fed factor
The market’s direction also hinges on the US Federal Reserve’s rate outlook, as it drives global liquidity and capital flows into markets such as India. US yields and the dollar typically ease on rate cut signals, making markets such as India more attractive. But if the cuts are delayed, higher US yields and a stronger dollar can pull back capital, pressuring emerging market equities.
With inflation easing and the US labour market remaining fragile, Elara Capital expects a 75-basis-point rate cut by the US Fed in 2026, “with majority of the cut coming in H2CY26″.
The brokerage, in its 21 February report, has estimated that tariffs may have added 84 basis points to core personal consumption expenditure through 2025.
Moreover, near-term frontloading of US’s imports to take advantage of lower tariffs may widen the trade deficit and weigh on growth, the report said.
