A surprise 25% tariff imposed by the US on Indian exports, coupled with threats of penalties for buying Russian oil, rattled equity market investors early in the session on Thursday. However, strong buying helped the market stabilize, reflecting cautious optimism over tariff easing—a potential policy change that analysts call a ‘Taco trade’, shorthand for ‘Trump always chickens out’.
The benchmark Nifty 50 opened 200 points lower and then recovered, but eventually ended the session 86 points lower than the previous close at 24,768.35. The day, the last Thursday of the month, also marked the expiration of the July derivatives series, leading traders to roll over positions amid the ongoing uncertainty.
“Today’s market action suggests that investors are bracing for a Taco trade,” said Nilesh Shah, managing director at Kotak Mahindra AMC.
“The market is hoping that Trump will reverse the tariff proposal keeping in mind the strategic interests of both the US and India. But whether or not that will happen is anybody’s guess, given the mercurial nature of Potus,” Shah said. “If indeed he does a Taco trade will play out, if not the volatility will increase,” he added.
The bellwether Nifty 50 closed above its crucial support zone of 24,500-24,600 points, which has held for many sessions, indicating that the markets are not overly worried. But if the uncertainty on tariffs persists, a breaching of this level cannot be ruled out, said Akshay Chinchalkar, head of research at Axis Securities.
Chinchalkar added that until Nifty 50 tops the resistance point of 25,020, it is likely to remain in the lower band of 24,450 -25,020.
“Mixed global cues and lack of immediate details (on US tariffs) made traders adopt a wait-and-watch stance on Thursday,” said Trivesh D., chief operating officer at Tradejini.
The markets had baked in a tariff of 15-20%, so the 25% levy–coupled with an unspecified penalty for buying Russian arms and energy–had led to an expectation of at least a one percentage fall in the indices, analysts said. The more benign decline has increased hopes of a bounce-back.
“I think we are looking at the 24,500 support holding and can see a potential bounce toward 25,500 next month if that plays out,” said Kruti Shah, quant analyst at Equirus.
Though the equity market held its nerve, the rupee continued with its fall against the US dollar from Wednesday which marked its biggest decline in five months. The local currency ended 17 paise lower at 87.6 to the dollar on Thursday.
“Due to Trump’s nasty surprise, there is concern on the current account, which has queered the pitch for the rupee,” said Sujan Hajra, chief economist at Anand Rathi. Hajra said the worst case is for the rupee to weaken by another 2.0-2.5 units in the short-term before the Reserve Bank of India intervenes.
Foreign institutional investors have continued to sell shares through the month. They net sold shares worth ₹5,538.19 crore on Thursday, while they sold ₹1,236 crore worth of index futures.
The market may react on sentiment in the short-term, but it is “unlikely to experience a major correction or trigger panic,” said Siddarth Bhamre, head of research (institutional equities) at Asit C. Mehta Investment Intermediaries Ltd.
Among sectoral indices, the Nifty Pharma fell the most, by 1.3%, followed by the Nifty Metal Index that declined 1.2%.
Impact on earnings
The new US tariffs are likely to have a limited impact on corporate earnings, and it is primarily likely to hit a small set of export-oriented companies, who may have to absorb part of the price increase, said Geroge Thomas, fund manager at Quantum Mutual Fund. These companies represent only a small portion of the market and will, thus, not impact the overall earnings, he added.
A few sectors such as pharmaceuticals and textiles may initially face pressure on their margins, as companies may have to bear a small part of the tariff cost at first before they can pass it on to their customers, but there will be no structural impact, said Vikas Khemani, founder of Carnelian Asset Advisors.
Khemani said he sees the overall impact to be limited since the tariff for India was lower than that on China, and as customers rarely switch supply channels solely due to price factors, especially in the “sticky sectors”.
“We estimate a 30-50% of the burden of tariff to fall on Indian exporters and the rest on US importers and consumers. However, any weakening of the rupee would partially offset the margin pressures of Indian exporters in rupee terms,” a report of Anand Rathi Research had said on Wednesday.
Tariffs at this level could shrink India’s big merchandise trade surplus with the US, its top export market, the report said.
India’s GDP growth projection could take a mild hit of 30-40 basis points if the tariff remains at 25%, the Anand Rathi report added. The country’s GDP growth is projected at 6.5% for FY26, as per the Reserve Bank of India.
