Indian stock market: The threat of steep tariffs imposed by US President Donald Trump on Indian imports cannot be overlooked. The 50 per cent tariff on India is higher than that on several of its export rivals—20 per cent for Bangladesh and Vietnam, and 30 per cent for China.
Despite assessments that Trump’s tariffs will have a manageable impact on the Indian economy and hopes that India will be able to strike a deal with the US in the near future, the fact is that exports from sectors such as gems and jewellery, textiles, and certain food items have come to a grinding halt.
The Indian stock market is still uncertain, trying to discount the impact of tariffs. However, more than the tariff itself, the biggest risk for the market is Trump’s unpredictability.
Can Nifty fall 10%+ from its peak?
The Nifty 50 has fallen nearly 4 per cent in the last one month, primarily due to tariff-related concerns. Experts expect the domestic market to remain under pressure in the near term due to Trump’s tariffs, elevated valuations and unimpressive earnings. They believe the market may see another 5 per cent fall.
“If US tariffs on Indian imports remain at 50 per cent, the Nifty 50 could see a cumulative drop of over 10 per cent from its peak, given the current valuations,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
“In India, the major concern remains the quality of corporate earnings. Even now, the market is trading at more than 21 times estimated FY26 earnings. With other global markets looking far cheaper, FIIs may continue selling Indian equities,” Vijayakumar added.
The 50 per cent tariff rate has made exports from India to the US practically unviable, which will significantly impact the domestic economy.
According to Bloomberg Economics estimates, the cumulative tariffs could cut exports to the US by 60 per cent and shrink India’s GDP by about 1 per cent.
Trump’s tariffs are expected to stoke inflation in the US in the coming months, which can push the US Federal Reserve to keep interest rates at elevated levels. This could create a situation of slowing growth amid rising inflation or stagflation. Such a condition will affect foreign capital movement in emerging markets like India.
The average US tariff is around 18 per cent—ranging from a low of 10 per cent for the UK to as high as 50 per cent for Brazil and India. Experts believe at least 10 per cent of these tariffs will be passed on to consumers, which will raise inflationary pressure.
Vijayakumar believes that the US GDP growth rate in 2025 will be a story of two halves. In the first half, particularly after the April 2 “reciprocal tariffs,” there was a huge frontloading of imports into the US, which sharply increased inventories. This pushed GDP growth into respectable territory for the first half.
That is unlikely to happen in the second half, Vijayakumar said.
Vijayakumar underscored that imports will fall, and whatever imports do take place will be subject to tariffs, which will be passed on to consumers. This will create a double whammy of a slowing economy and rising inflation—commonly known as stagflation.
“In such an inflationary environment, Fed Chair Jerome Powell is unlikely to cut interest rates. While the consensus currently points to a 25-basis-point cut in September, this is improbable as incoming data could deteriorate further. A global slowdown, a US slowdown, and higher US inflation are all possible,” said Vijayakumar.
A global economic slowdown and the return of inflationary pressure could mean the market remains subdued for a longer period.
A lot will also depend on how the bond market behaves amid the evolving situation and incoming data.
After the April 2 reciprocal tariffs announcement, the US bond yields saw sharp spikes. Many experts saw rising yields as one of the key reasons why Trump announced a 90-day pause on tariffs and agreed to negotiations.
It is quite possible that China could sell part of its US bond holdings if it fails to secure a favourable deal with the US before the August 12 deadline. This could impact the US bond market.
Experts believe Trump’s tariff tantrums may last for a year or so, till the mid-term elections.
“In 2026, the US will hold mid-term elections for the House of Representatives and the Senate, and given the sharp fall in Trump’s popularity—likely to worsen due to rising inflation—he may lose his majority. If that happens, his ability to impose trade measures freely could be curtailed,” said Vijayakumar.
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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.
