Is This the Start of a Market Shift?

Over the past few weeks, the Indian stock market has been giving mixed signals with strong recoveries one day and sharp pullbacks the next. And now, with the U.S. announcing steep tariffs on Indian goods, you must be wondering if we are entering a new phase.

Is the market actually gearing up for a larger shift? If you’re trying to figure out what to do with your investment, whether to buy, hold, or rebalance your portfolio, then this is where it all starts to make sense.  Let’s begin!

March 2025 was a positive month for the Indian stock market. The Nifty 50 index jumped by 6.3%, marking its best performance in 15 months and ending a five-month losing streak. This increase contributed to an overall gain of 5.34% for the fiscal year 2024-25. Similarly, the BSE Sensex advanced by 5.1% during the same period.

However, this momentum faced challenges in early April. On April 7, 2025, the Nifty 50 fell by 742 points to 22616.60, and the BSE Sensex dropped by 2226 points to 73137.90. This dip was mainly because of the announcement of new U.S. tariffs on almost all countries and their domino effect.

Moreover, after showing a positive sign in March, FII DII data shows that FIIs have gone back to selling their positions by dumping ₹14,000 crore of Indian stocks so far in April. DIIs, on the other hand, started buying and have bought stocks worth ₹17,735 crore in April till now.

On April 2, 2025, the U.S. imposed a 26% reciprocal tariff on Indian imports, citing high Indian tariffs on U.S. goods. This move is part of a broader strategy that targets multiple countries, with tariffs ranging from 10% to 49%.

Key Indian export sectors like electronics ($14 billion), gems and jewellery ($9 billion), and select aluminium and auto parts are expected to bear the brunt of these new tariffs. However, pharmaceuticals and energy products have been exempted in this round.

Despite these tariffs, analysts suggest that Indian stocks may be more resilient compared to other Asian markets. This is partly because India’s exports to the U.S. constitute only about 2% of its GDP, and the tariffs imposed are much lower than those in countries like China and Vietnam.

Now, let’s look at some sectoral highlights:

The pharmaceutical sector emerged as a bright spot in this tariff turmoil. Stocks in this sector surged between 3-13% after being exempted from the new U.S. tariffs. This exemption is significant, considering the U.S. is a major market for Indian pharmaceutical exports, accounting for about 30% of total pharma exports.

On the other hand, the IT sector faced challenges. The Nifty IT index dropped by 4.2%, its sharpest decline in two years. Concerns over a potential U.S. recession and its impact on revenues for Indian IT firms contributed to this decline.

Companies that derive a significant portion of their revenue from the U.S. are particularly vulnerable to these economic shifts.

India’s $32 billion gems and jewellery industry is facing a steep decline in exports due to the newly imposed 26% tariff by the U.S., its largest export market. The U.S. accounts for nearly $10 billion of these exports, making up over 30% of India’s total in the sector.

Industry officials have expressed concern over the severity of the tariff’s impact, especially given the existing weakened demand in other markets like China.

One of the biggest shifts India has seen in the last few months is retail investors moving their money differently. While equity mutual funds still saw healthy inflows in early 2025, a new trend is rising with more people putting their money in safer, non-equity assets.

Gold ETFs, for instance, saw inflows of ₹3,751 crore in January 2025 alone. That’s more than double the monthly average from 2024, showing a growing appetite for safety amid uncertainty. 

Mid-cap and small-cap funds that were once the darlings of retail investors are now under pressure. Valuations look stretched, and some advisors are warning of a possible correction. As a result, many individuals are rotating money into large-cap or sector-specific opportunities like banking, pharma, or even PSU stocks, which are showing renewed strength.

The Reserve Bank of India (RBI) is anticipated to implement further interest rate cuts totaling 75 basis points in 2025, following a 25 basis point cut in April that brought the repo rate to 6.00%. This move aims to stimulate economic growth, which is projected to be between 6.3% and 6.8% for FY26.

All in all, we believe that the market is currently moving towards safer forms of investing, with people choosing non-equity assets and large-cap funds compared to other investment options.

The stock market might get back on track once investors have more clarity on the uncertainties caused by the new U.S. tariffs. That said, you should stay updated on stock market news to understand investor sentiment before making any decisions.

The Indian stock market is experiencing a period of transition, influenced by both domestic policies and international factors like U.S. tariffs. While certain sectors are ready for growth, others may encounter hurdles. By staying updated and adopting a diversified investment strategy, you can position yourself to potentially benefit from these evolving market dynamics.