Indian equity markets set for losses after Donald Trump's tariff surprise

Indian equity markets are expected to open lower on Thursday after US President Donald Trump’s unexpected announcement of a 25 per cent tariff on Indian goods, effective August 1. 

 

President Trump also indicated possible further penalties on India’s energy imports from Russia.

 

Following Trump’s announcement the Nifty derivatives contracts traded at the Gujarat International Finance Tec-City (GIFT City) shed over half a per cent. 

 

Experts said the markets could decline between 1 and 2 per cent on Thursday. 

 

Most vulnerable stocks will be from garments, pharmaceuticals, gems and jewellery,  automotive and petrochemicals sector. However, those with no US exposure could also be impacted due to the concerns of overall impact on the economic growth. 

 

 

Analysts said if no deal is reached with the US or could shave off GDP growth by 20 basis points. 

 

“Markets will react negatively to the tariff imposition. Despite the unpredictability of US policy, investors anticipated a deal given the aligned long-term interests between the US and India,” said Nilesh Shah, MD, Kotak Mahindra AMC.

 

Sectorally, the inclusion of pharmaceuticals among the tariffed goods could have a significant impact, as the US accounts for over 30 per cent of India’s pharma exports.

 

 “Markets may fall 1-1.5 per cent but should stabilise soon after. While several sectors will feel the pain, the broader impact may be contained as long as IT and service exports remain unaffected,” said Chokkalingam G, founder, Equinomics.

 

The US President’s threats of additional penalties came a day after he formally announced to Russia a 10-day deadline to reach a truce with Ukraine. The US had threatened secondary levies that would target countries that import Russian exports, such as oil.

 

India was among the first to engage with the US in trade talks. The US is India's largest trading partner and top export market.

 

Market experts said that a 25 per cent tariff rate is a negative development compared to lower rates for peers such as Vietnam, Indonesia, and the Philippines, which compete with India in similar categories of labour-intensive products and electronic goods, as well as for foreign portfolio investment (FPI) flows. 

 

FPIs have been net sellers in India this month while being buyers in other emerging markets.