The local equity market is expected to see highlighted short-term volatility following US President Donald Trump’s announcement of imposing a 26% “discounted reciprocal tariff” on all imports from India. Export-driven sectors such as Information Technology (IT) and auto components face significant challenges as they are directly exposed to tariff impacts and broader global trade friction.
At Thursday's close, the Sensex was down 322.08 points or 0.42% at 76,295.36, and the Nifty was down 82.25 points or 0.35% at 23,250.10. The Midcap and Smallcap indices, however, managed to close in the green.
Trump on Wednesday declared a universal 10% baseline tariff on US imports, calling it "Liberation Day," with reciprocal tariffs starting at that rate. While most countries would face the baseline levy, 60 nations—including India—would be subject to higher duties, some as steep as 50%.
The news triggered a global market selloff, with US equity futures experiencing significant declines. In the Asian market, Japan’s Nikkei fell the most at 2.77% while the Hong Kong Stock Exchange and Shenzhen fell about 1.5% each.
In India, the IT sector, which has high exposure to the US market, was particularly affected, with the Nifty IT index plummeting 4.21%. TCS, Infosys and HCL Technologies fell up to 4% on Thursday. Stocks of Pharma companies, which also have high US exposure, escaped the selling pressure as this sector remains exempt from the tariffs.
Domestic brokerage firm Axis Securities said that the new tariff structure is expected to introduce considerable volatility in global markets, raising concerns around trade flows, supply chains, and broader economic growth.
It added that market volatility is expected to remain elevated in the near term due to the extent of the tariffs, which have surpassed market expectations. These measures are inherently inflationary and could complicate the US Federal Reserve’s monetary policy trajectory. Furthermore, any escalation in trade disruptions may heighten recessionary risks in the US, leading to a broader slowdown in global economic activity.
“Given the significant influence of the US economy on global financial markets, short-term sentiment is likely to be impacted,” said Axis Securities.
Nitin Rao, CEO of InCred Wealth said that we are now entering a new world order, and there’s nothing wrong if other countries were having tariff barriers while the US did not, and is now correcting it. Markets will have to price this in, both in terms of sentiment and earnings, added Rao.
Pranay Aggarwal - Director & CEO of Stoxkart said that the reciprocal tariffs may trigger short-term volatility in global markets, particularly in sectors like autos, steel, and agriculture. He added that for India, heightened trade tensions may weaken the INR and deter FDI, though domestic stimulus could offset risks.
“Investors should monitor retaliatory actions and sector-specific exposures. Defensive stocks (FMCG, utilities) may outperform, while cyclical sectors (autos, metals) could underperform. Long-term implications hinge on negotiation outcomes, but near-term caution is advised,” said Aggarwal.
Gold prices reached a new peak on Thursday, driven by investors seeking safe-haven assets. The yellow metal hit a fresh high of Rs 91,423 per 10 grams on the Multi Commodity Exchange (MCX). This increase followed gains in international bullion prices.
The rupee ended flat but traded in a volatile range between 85.75 and 85.35. Jateen Trivedi, an analyst at LKP Securities said that moving forward, the rupee is expected to trade within the 85.00-85.90 range, with global cues and FII flows guiding the trend.
Meanwhile, India’s 10-year Bond Yield, which fell below the 6.5% mark for the first time in more than three years on Wednesday, rose sharply by 1.87% on Thursday to close above the 6.6 level.