US Tariffs on Indian Exports Trigger Market Decline

US tariffs on Indian exports trigger market decline as bilateral trade tensions escalate across manufacturing sectors

Key Takeaways

• Nifty 50 drops to two-week low as the index fell 0.7% to 24,507 points following implementation of steep 50% US tariffs on Indian imports
• $55 billion in Indian exports now face higher duties representing roughly 70% of India’s US-bound shipments, with the US accounting for 18% of India’s total exports worth $80 billion in 2024
• Tech and pharma sectors remain shielded from tariff impact as smartphones and pharmaceuticals are notably excluded from the new duties, offering strategic protection for India’s fastest-growing export categories

Introduction

India’s equity markets face mounting pressure as the United States implements comprehensive 50% tariffs on a broad range of Indian imports. The benchmark Nifty 50 index dropped to a two-week low, declining 0.7% to 24,507 points as investors react to the trade policy escalation.

The tariffs effectively double duties on numerous Indian products, particularly impacting labor-intensive sectors such as textiles, gems, and jewelry. This development marks a significant shift in US-India trade relations, with market participants closely monitoring the broader economic implications.

Key Developments

The United States initially imposed a 25% duty earlier this year, adding another 25% in August to reach the current 50% tariff level. The policy targets critical components of India’s export base, creating immediate challenges for manufacturers and exporters in affected sectors.

Indian equity benchmarks opened lower on Thursday, with the BSE Sensex falling 0.7% alongside the Nifty 50. The broader market also declined, with the Nifty Small-Cap index slipping 0.2% and the Nifty Mid-Cap index down 0.1%. Fourteen of the sixteen major sectoral indices registered losses during early trading.

US officials associate the additional tariffs with India’s continued imports of discounted Russian oil. This geopolitical dimension adds complexity to the trade dispute, as India’s purchases of Russian crude have reportedly saved the country an estimated $7-10 billion.

Market Impact

The effective tariff rate on Indian exports to the US jumps to 34%, placing India second only to China in terms of punitive trade measures. Export-dependent sectors including textiles, jewelry, leather, and seafood face immediate pressure from the policy change.

Foreign Institutional Investors sold ₹6,516 crore worth of equities, while Domestic Institutional Investors bought ₹7,060 crore, marking the second consecutive session of DII buying. This institutional activity pattern suggests domestic investors are providing market support amid foreign selling pressure.

Despite the overall downturn, certain sectors demonstrated resilience. Pharma, electronics, and steel stocks showed strength, likely benefiting from tariff exemptions. Asian Paints emerged as a top gainer, rising 1.55% to ₹2,519.90, while Shriram Finance led declines, falling 2.47% to ₹580.00.

Strategic Insights

The tariffs create a clear division between vulnerable and protected sectors within India’s export economy. Labor-intensive industries face significant headwinds, while technology and pharmaceutical sectors benefit from strategic exemptions that preserve their competitive position.

According to the Financial Times, about $55 billion of India’s US-bound exports now face higher duties, representing roughly 70% of total shipments to America. This exposure highlights the concentrated risk facing Indian exporters in their largest overseas market.

The policy shift signals a broader recalibration of US-India trade relations. Barclays notes that India now faces a disadvantage compared to most developing economies except Brazil, describing the relationship evolution from “good friend” to “bad trading partner.”

Expert Opinions and Data

Santanu Sengupta, chief India economist at Goldman Sachs, said extended 50% tariffs risk cutting GDP growth to below 6%, compared with the current projection of roughly 6.5%. Export rivals such as Turkey and Thailand, which face lower US duties, are already attracting American buyers with cheaper goods.

Speaking from the ramparts of Delhi’s Red Fort during Independence Day celebrations, Prime Minister Narendra Modi, wearing a saffron turban, called on small businesses and shopkeepers to display “Made in India” signs. He urged self-reliance as a matter of national pride rather than necessity, warning that rising global economic protectionism required India to avoid dependence on others.

The Reserve Bank of India monitors the situation closely to evaluate broader economic consequences. Prime Minister Modi’s administration considers fiscal and policy measures to support affected sectors, including possible revival of the Emergency Credit Line Guarantee Scheme for MSME exporters.

Conclusion

Indian markets face a complex adjustment period as the 50% US tariffs reshape export dynamics and investor sentiment. While technology and pharmaceutical sectors maintain protection through exemptions, traditional labor-intensive industries confront significant challenges in their largest export market.

The government’s policy response and the sustainability of domestic institutional buying will determine market stability in coming sessions. Current developments underscore the critical importance of export diversification and strategic trade relationship management for India’s economic resilience.