US President Donald Trump, in his second term, has imposed a series of tariffs globally (including on penguins), which has spawned the usual Internet jokes. One goes President Trump telling Chinese Trade negotiators, “It’s my way or the Huawei. (reference to the Chinese company).”
While trade wars and their consequent impact on the bourses are not normally the material for stand-up comics, the effect that these tariffs have had on India’s equities can be taken with a pinch of salt.
“President Trump’s recent announcement of a series of tariffs on India has created short-term volatility and uncertainty in the equity markets and triggered an FII sell-off,” says Arjun Guha Thakurta, Executive Director, Anand Rathi Wealth Limited.
Over the long term, fundamentals and corporate earnings continue to remain the key drivers of equity performance.
A lot depends on the ongoing discussions between Trump and Putin (President of Russia) and the Russia–Ukraine discussions, according to market experts.
tar“There can be a deeper correction in the market,” warns Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Investments.
But wait, here is some news that gives us a moat to fight back from.
It is to be noted that India is not an export-oriented economy, unlike other countries, and therefore, the impact of this will be minimal, with many estimates putting the figure at a quarter percentage of the GDP.
To be sure, the effect of the tariffs will vary across the various sectors of the Indian economy and the companies of these sectors that are listed on the bourses.
“Certain sectors will likely be more insulated due to their domestic demand-driven nature, while others with significant export dependence on the US may face slight headwinds,” explains Thakurta.
Sectors such as FMCG, retail services, banking, financials, infrastructure and utilities are less likely to be affected, since they are largely driven by domestic demand.
On the other hand, IT services, pharma and textiles are more exposed due to their higher export linkages.
The structural impact on India’s exports may be limited as our export market is well diversified across geographies and the share of exports to the US is relatively small, less than 2 per cent of India’s GDP. “This diversification cushions the broader economy and markets,” says Thakurta.
“Thus, while export-heavy sectors like IT and pharma may see near-term earnings volatility, the long-term trajectory of India’s markets should remain intact,” notes Thakurta.
Meanwhile, domestic-focused sectors are unlikely to be impacted.
“Domestic consumption-driven sectors like banking and finance, telecom, aviation, capital goods, hotels, FMCG and cement will not be impacted by Trump’s tariffs,” says Vijayakumar. He does caution that investors need to choose stocks which are fairly valued in these segments.
Experts, however, feel that the tariffs and any possible correction in Indian equities would be a good entry point for the retail investor into equities.
“Investors can use this correction as an entry point to long-term allocations,” says Arihant Bardia, CIO and Founder, Valtrust.
“History suggests that such tariff-driven disruptions typically have only a temporary impact on markets,” says Thakurta, who notes that over the long term, fundamentals and corporate earnings continue to remain the key drivers of equity performance.
For investors, the best strategy during such phases is to remain invested in their existing portfolios rather than react emotionally to short-term events, experts say.
Exiting in haste often results in missing subsequent recoveries once stability returns. If investors have surplus funds, they can consider deploying them gradually in a staggered manner, aligned with their long-term financial goals. This disciplined approach helps smooth out volatility and ensures participation in long-term wealth creation, irrespective of geopolitical noise or external shocks.
“Build an all-weather portfolio and rebalance to clear targets. For long-term goals, maintain an 80:20 equity to debt mix; for medium-term goals, use 70:30. Use SIPs or STPs rather than trying to time policy cycles,” says Thakurta.
MFs to the rescue
Investors can use MFs (mutual funds) to tide them over the uncertainty caused by President Trump’s tariffs on the bourses.
“We generally suggest investors stay invested in a diversified investment basket by allocating across active diversified equity categories such as market-cap based funds, as well as strategy-based funds like dividend yield, value and contra,” says Thakurta.
This broad-based exposure helps eliminate the concentration risk associated with the performance of any single category, while also ensuring participation across sectors and styles.
The diversification also enables investors to ride through market cycles more comfortably and reduces the impact of short-term policy-driven disruptions like tariffs. Within this, use market-cap categories like Large Cap, Mid Cap, Small Cap, Flexi Cap and Multi Cap, complemented by style funds such as Value and Contra to balance factor cycles and have a blended style portfolio.
Mid-caps, small-caps and tariffs
Tariffs do not target market caps, so these segments are not directly affected as categories. Export-oriented names within them can face temporary earnings pressure, but impacts are company-specific and tend to normalise.
Experts feel that the high P/E (price earnings) is the greater deterrent in this sector.
It is important to understand that 210 stocks out of the BSE500 are trading above 50 PE, which is hard to justify from a fundamental perspective. “High PE for stocks with sustained long-term growth potential is fine. But that is not the case across the mid and small cap universe,” says Vijayakumar.
“We recommend a strategic market-cap allocation of 55:25:20 across Large, Mid and Small to reduce volatility and improve portfolio stability and liquidity, with periodic rebalancing,” says Thakurta.
The Indian economy is poised for strong and sustainable growth, with GDP expected to expand at 6.5 to 7 per cent in the coming years. This provides a favourable environment for Indian equities, supported by robust corporate earnings, government reforms and demographic tailwinds. “For investors, staying invested in domestic equities through a diversified basket of funds offers a strong opportunity to participate in the long-term growth story,” ends Thakurta.
President Trump’s tariff effect on the Indian economy
Fitch Ratings, in an August 18, 2025, report, noted that they believe that India-based corporates generally have low direct exposure to US tariffs, but sectors that are currently unaffected, including pharmaceuticals, could be hit by further US tariff announcements. The risk of second-order effects from existing tariffs is also rising. A US-India trade deal, if secured, would reduce these risks.
The US imposed 25% “reciprocal” tariffs on India with effect from 7 August 2025 and an additional 25% levy in connection with its oil imports from Russia, effective 27 August.
India’s direct automotive exports to the US, including parts, are limited. The US is a key export destination for Indian pharmaceutical companies.
Fitch currently assumes a minimal direct tariff impact on Indian IT service companies and domestically focused sectors such as upstream and downstream oil and gas, cement and building materials, engineering and construction, telecoms, and utilities.
However, if US tariffs are sustained at levels significantly higher than in other Asian markets, we see moderate downside risks to our projection that the economy will grow by 6.5% in FY26. This would weigh on the operating performance of more Indian companies, according to excerpts from the Fitch report.
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.
