Will Trump's tariffs divert FII money towards Indian stock markets?

Trump Tariffs: The tariff news, analysts added, is likely to be perceived positively by both domestic and foreign portfolio investors, particularly in export-oriented sectors

Trump Tariffs on India: India’s relatively better macroeconomic fundamentals as compared to its emerging market peers such as China are likely to withstand Donald Trump's reciprocal tariffs, feel analysts. Foreign institutional investors (FIIs), they said, could relook at Indian markets in this backdrop.

 

“Lower-than-expected tariffs (for India) have eased pressure for most investors. This development comes as a welcome surprise, especially when combined with other favorable factors such as valuations, growth outlook, and macroeconomic stability — all of which point toward a conducive investment environment,” said Nirav Karkera, head of research at Fisdom. 

 

 

The tariff news, he added, is likely to be perceived positively by both domestic and foreign portfolio investors, particularly in export-oriented sectors that are more vulnerable to tariff-related risks.

 

Notably, foreign institutional investors (FIIs) turned net buyers in the week ending March 28, 2025, breaking a 16-week outflow streak, the longest in 25 years. This helped them turn net buyers for Indian equities worth ₹2,014.18 crore for the month, a first since October 2024.

 

Their record selling of $1.3 billion in the domestic equity market has already erased India’s market capitalisation by ₹75 trillion from its peak, making valuations relatively inexpensive at present.

 

Add to it, only around 15 per cent of Nifty50 companies have significant goods exports business. Rest of the companies are largely driven by domestic business. India, analysts believe, would focus on domestic demand, developing import substitutes (like mobile production) and, also, on consolidating services exports, which will help the economy mitigate the overall impact of trade wars over the medium-term and attract investor money. 

 

“India is in a formidable position with the world's largest population to drive the economy with domestic demand. The Indian government is also expecting the value of the country's service exports to exceed goods exports soon. With strong inflow of foreign capital (especially FDIs), robust inflow of NRI remittances, and strong base of service exports, India is better positioned to overcome this setback and it would be able to keep growing its economy and equity wealth in the medium to long-term,” G Chokkalingam added.

 

That said, analysts cautioned that the developments are not a clear green light for FPIs yet.

 

Vinit Bolinjkar, head of research at Ventura Securities, for instance, said that while India stands to gain from fund outflows in the US and/or China, the sustainability of these flows remains a key monitorable.

 

Trump Tariffs: India versus rest of the world

 

Meanwhile, the tit-for-tat tariffs, which were announced by Trump to “make America wealthy again”, start with a baseline levy of 10 per cent and go up to as high as 54 per cent.

 

India, on its part, faces reciprocal tariffs to the tune of 27 per cent on most goods exported to the United States. By comparison, China faces tariffs (including reciprocal and previously announced tariffs) of 54 per cent, while Vietnam faces only reciprocal tariffs at 46 per cent, Taiwan 32 per cent, Thailand 36 per cent, Bangladesh 37 per cent, and Sri Lanka 44 per cent.

 

Relatively lower tariffs, coupled with India’s minimal dependence on exports, could keep the country insulated from any major blow to the economy growth, thus supporting investment sentiment, analysts said.

 

“Compared to China, where exports contribute around 20 per cent to their economy, Indian exports contribute approximately 10 per cent of the total gross domestic product (GDP). Of this, the US accounts for 18 per cent of total exports. Therefore, the impact of these reciprocal tariffs should be manageable,” said G Chokkalingam, founder and head of research at Equinomics Research.