Donald Trump’s 25% tariff will hurt Indian market sentiments

US President Donald Trump has announced a 25% tariff on India (plus a potential penalty) starting August 1. This is similar to the tariff announced on liberation day (April 2) and is somewhat higher than the overall weighted average tariff on all imports of 18%. Among EM peers, Vietnam, Indonesia and Philippines have lower tariffs than India (~20%), Korea has tariffs similar to India (25%) while Bangladesh (35%) and China (55%) have higher tariffs. This is likely to slow down India’s goods exports to the US (USD87bn; ~20% of India’s goods exports, ~2.5% of GDP). Notably, the US market is key for textiles, pharma, electronics, agri and machinery exports.

Following the modest pullback seen in the previous session, US stocks showed a lack of direction over the course of the trading day on Wednesday. The S&P 500 edged down 0.13% as Federal Reserve Chair Jerome Powell’s comments dampened expectations for a rate cut in September. Investors focused on technology, cushioning the index’s losses amid growing uncertainty around tariffs and monetary policy.

The Dow posted a 0.38% decline, its third consecutive drop. Industrial giants and multinational consumer firms faced pressure from ongoing tariff threats and lackluster rate cut signals from the Fed, stoking volatility and caution.

U.S. stock index futures trading in green, as gains in Microsoft and Meta following robust earnings buoyed technology shares. Microsoft’s Azure revenue and Meta’s upbeat outlook drove optimism for the sector, with both stocks jumping 6–10% after results.

The Federal Reserve kept rates unchanged, but an unusual split within the committee—with two dovish dissenters—highlighted internal disagreement and added to market unease. Powell emphasized patience and suggested 'no decisions' have been made on autumn easing.

Back home, Nifty extended its gains for a second consecutive session, gaining by 33 points (0.14%) to close at 24855. Broader market underperformed the Benchmark Indices yesterday as Nifty Midcap 100 Index registered a modest fall of 0.07%, while the Nifty Smallcap 100 Index saw a more pronounced loss of 0.52%. However, market breadth remained positive for the second day in the row, with the advance-decline ratio on the BSE stood at 1.03.

The Indian rupee exhibited its most significant single-day decline yesterday since May 8, plummeting by 60 paise against greenback to close at 87.42. This marks a fresh five-month low for Indian rupee. This sharp depreciation was primarily driven by increased month-end dollar demand and outflows from foreign funds.

It’s a result heavy day, where sixteen companies from the F&O pack and five Nifty companies – Adani Ent, Coal India, Eicher motors, Hindustan Unilever and Maruti are going to declare their quarterly results today.

We expect our markets to open sharply lower as they will respond unfavourably to the US President Donald Trump's decision to impose a 25% tariff on India and threat of additional penalties for trade with Russia.

However, as our markets have partially discounted it by underperforming the global peers over past few weeks, markets will attempt to recover from these initial losses as the day progresses.

Today's monthly derivative expiry may add another layer of volatility to trading.

Recent swing lows of 24598 and 24473 could now act as immediate support levels. On the higher side, the band of 24,900-25,000 would continue to serve as a substantial hurdle for the Nifty, indicating resistance for any upward moves.