The Indian stock market continued to trade under significant pressure for the second consecutive session on Thursday, August 28, weighed down by concerns over Trump’s 50 per cent tariff on Indian goods.
The frontline index, the Nifty 50, declined nearly 1 per cent during the session but managed to stay above the psychologically important 24,500 mark. The index hit an intraday low of 24,507.
The domestic market avoided a knee-jerk reaction, raising hopes that it might be discounting the impact of Trump’s tariffs and could be near its bottom. Any positive development on the tariff front could trigger a fresh and healthy upside in the market.
Worst over or more pain ahead?
Experts believe that the market is in the process of discounting the Trump tariffs. It still expects that the tariffs will be a short-term pain and that a resolution will eventually be reached.
“The market’s perception is that this will be a short-term affair and that Trump is simply trying to arm-twist India. Investors expect the 50 per cent tariff will not last and that there could be a resolution regarding the additional 25 per cent tariffs,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
However, there is no certainty that the tariffs will go down soon. Moreover, if US President Donald Trump decides to impose tariffs on sectors like pharma and IT, it will be a severe blow to the Indian economy and stock market.
At this juncture, tariffs are expected to affect a select few sectors, including textiles, gems and jewellery, and certain food items. Sectors such as pharma, semiconductors, electronics, and IT are still exempt from these tariffs.
According to Radhika Rao, Senior Economist at DBS Bank, a less probable scenario of high tariffs squeezing half of India’s export basket to the US could have a nearly 1-1.2 percentage point impact on Indian economic growth.
For now, the market’s modest resilience is underpinned by hopes of a resolution to the US tariffs.
Pankaj Pandey, the head of research at ICICI Securities, pointed out that India is a predominant player in cotton production and cotton-based textiles, and it will be difficult for the US to find a country that can replace India. This is why there is some anticipation of some realignment of the supply chain and production going forward. Until then, these segments are likely to remain under pressure.
Pandey said the tariff situation could change at any moment if there is progress in negotiations.
“We do not expect the tariffs to remain in place for long. We believe the market is near its bottom and do not expect the Nifty to go below its recent low and breach the 24,350 level,” said Pandey.
However, tariffs are not the only concern keeping the market down. Heavy foreign capital outflow, earnings-valuation mismatch and waning hopes of earnings revival in the next few quarters are additional factors behind the market’s fall.
Foreign institutional investors (FIIs) have sold Indian equities worth ₹34,733 crore in the cash segment in August so far after a massive selling of ₹47,667 in July.
“The real challenge before the market is the high valuations and the tepid earnings growth. The strong pillar of support to the market is the aggressive buying by DIIs flush with funds. Any selling by FIIs will be easily neutralised by the aggressive buying by DIIs,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
Vijayakumar believes there may still be some pain in the market, as there is a possibility that FIIs could turn aggressive sellers, dampening sentiment and pushing the domestic market further down.
“While the India growth story remains appealing, the market tends to discount near-term events and does not fully factor in developments that are three to four years away. Its focus will remain on earnings growth and valuations,” 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.
