Markets shrug off Trump tariff threat, end slightly lower after recovery

Benchmarks end down marginally after clawing back from steep losses

The announcement of higher tariffs and accompanying penalty threats did little to shake domestic equity markets, with benchmark indices finishing the session only marginally lower.

 

Although the Sensex and Nifty both plunged nearly a per cent in early trading, they managed to claw back all their losses at one stage before slipping back into the red later in the day.

 

The Sensex closed at 81,186, down 296 points, or 0.4 per cent, while the Nifty 50 ended at 24,768, a decline of 87 points, or 0.35 per cent. At the day’s low, the Sensex had dropped as much as 787 points, or 0.96 per cent.

 

Experts attributed the market’s resilience to the limited reliance on exports among companies with considerable weight in the benchmark indices. Investors also remained optimistic that the tariff threats were largely a bargaining ploy, expecting the final rates to be lower once India-US negotiations conclude.

 

US President Donald Trump on Wednesday proposed a 25 per cent tariff on Indian goods and threatened unspecified penalties for energy and defence deals with Russia. He added, however, that trade talks with India were still ongoing.

 

“The tariff will have little impact on the second half of 2025-26’s (FY26’s) earnings recovery trajectory, as high-weight sectors such as financials, consumption, and technology are unaffected. There may be a short-term selloff, given the market’s fragile state: weak earnings momentum in the first quarter and little valuation comfort, with most indices trading at their long-term averages,” said a note by Emkay.

 

Economists said the steeper-than-expected tariffs could shave up to 40 basis points (bps) off India’s gross domestic product (GDP) growth in FY26.

 

“The announced reciprocal tariff rate of 25 per cent may, however, be temporary and could settle lower as negotiations continue after August 1. Still, the best-case outcome appears to be tariffs in the 15–20 per cent range, which is disappointing considering India’s more advanced stage of negotiations. We maintain our FY26 GDP growth forecast at 6.2 per cent but flag a downside risk of about 20 bps,” Nomura said in a note. 

 

The India Vix climbed 3 per cent as traders absorbed the US-India trade developments and the US Federal Reserve’s (Fed’s) rate stance. On Wednesday, the Fed held rates steady at 4.25–4.5 per cent despite pressure from Trump for a large cut. Fed Chair Jerome Powell said the central bank had made no decision about a rate cut in September, adding that it had time to process a wide range of data before its next meeting.

 

His comments dashed hopes of a September rate cut. Still, US markets remained upbeat as strong earnings from American companies allayed concerns of a tariff-driven slowdown in the world’s largest economy.

 

Excluding FMCG, all NSE sectoral indices ended in the red. Nifty Oil & Gas, Nifty Metal, and Nifty Pharma saw the steepest declines, falling between 1.2 per cent and 1.5 per cent. The Nifty FMCG index rose 1.5 per cent after shares of market leader Hindustan Unilever jumped 3.6 per cent, driven by better-than-expected volume growth in the April-June quarter.

 

Overall market breadth was negative, with 1,602 stocks advancing and 2,416 declining on the BSE. The Nifty Midcap 100 and Nifty Smallcap 100 indices both fell by around a per cent each.