Indian Markets: How will new US tariffs affect Indian markets and investor confidence?

Mumbai: Indian markets slid amid a broad-based sell-off on Tuesday, with the two main indices falling 1% each, after the US notice of an additional 25% tariff from Wednesday. Market experts said the street had been expecting some delay in implementation, but 50% tariffs may become the new normal and market sentiment has been dented by this blow.

The NSE Nifty fell 255.7 points or 1.02% to close at 24,712.05. The BSE’s Sensex declined 849.37 points or 1.04% to end at 80,786.54.

On the NSE, except for fast-moving consumer goods (FMCG), all sectoral indices declined on Tuesday, with the realty, PSU bank and consumer durables indices down 1.8-2.2%.

“Markets were anticipating a potential rationalisation or delay in implementation of the additional 25% tariffs on India,” said Rajesh Palviya, head of technical and derivatives research at Axis Securities.

Bracing for Prolonged Adjustment

“But with the US signing the order, that hope has faded, triggering a sell-off,” said Palviya of Axis. “Sentiment remains weak, and with markets next opening on Thursday, which is Nifty’s monthly expiry, supply pressure may persist.”
Markets are shut on Wednesday for Ganesh Chaturthi.
There are few signs of a quick resolution of the tariff matter, analysts said. “Markets are now bracing for a prolonged period of adjustment as the tariffs are set, bilateral negotiations are cooling, and no quick resolution is in sight,” said Vikram Kasat, head, advisory, PL Capital. “While a trade deal could reverse some tariffs, we now expect ongoing volatility and a shift in global supply chains-this may well be the ‘new normal’ unless meaningful negotiation resumes.”
Kasat said textiles and apparel, gems and jewellery, auto parts and components, leather, furniture, chemicals, and seafood will be the worst hit. Pharmaceuticals, electronics, energy, and critical minerals are exempt, so their direct exposure is limited for now.
Nifty’s Volatility Index or VIX – the market’s fear gauge – jumped 3.7% to 12.19 on Tuesday, indicating heightened caution among traders.

Foreign portfolio investors net sold shares worth Rs 6,517 crore. Domestic institutions were buyers to the tune of Rs 7,060 crore.

The weakness mirrored that of other Asian markets as Japan declined 1%, China declined 0.4%, Hong Kong fell 1.2%, South Korea declined 1% and Taiwan rose 0.1%. The pan-Europe index Stoxx 600 was down 0.6% at the press time.

Kasat said the initial price declines reflect the expected drag on GDP growth and corporate profits, though he warned of more downside if trade escalation or retaliation occurs.

“Prolonged FII (foreign institutional investor) selling, rupee depreciation and rising commodity prices have further weighed on market sentiment,” said Palviya.

If the Nifty opens below 24,700 on Thursday, it may slide towards 24,500, while on the upside, resistance is seen at 24,900-25,000.

The broader market indices took a heavier hit. The Nifty Midcap 150 dropped 1.5% and the Nifty Small-cap 250 fell 1.9%. Of the total 4,241 stocks traded on the BSE, 1,155 advanced and 2,973 declined at the close.