Trump tariff shocker leaves Indian stocks, exporters scrambling

US President Donald Trump's announcement of a sweeping 25 per cent tariff on all Indian exports, effective August 1, has triggered widespread in the stock market and among exporters.

The benchmark equity indices fell substantially on Friday (August 1) amid concerns over Trump tariffs as well as weak global cues and persistent foreign fund outflows. At around 12.15 pm, the BSE Sensex dropped 291.38 points, or 0.36 per cent, to 80,894.20. The broader NSE Nifty declined 109.8 points, or 0.44 per cent, to 24,658.55.

On Wednesday, before Trump made his announcement, the Sensex had closed at 81,481.86 while the Nifty 50 had closed at 24,855.

Export-linked sectors are bearing the heaviest brunt. Among the hardest hit over yesterday and today are textile stocks, with Gokaldas Exports sinking up to 6.49 per cent, Welspun Living losing over 5 per cent, and Vardhman Textiles, Arvind Ltd, KPR Mills, Pearl Global, Indo Count, and Kitex Garments also dropping by 3-8 per cent. Apparel-focused players like Faze Three saw even sharper single-digit declines of around 11 per cent yesterday.

Also read: Trump’s sudden tariff hike stuns Surat and Mumbai’s diamond, textile hubs

The gems and jewellery, engineering goods, and shrimp/seafood exporters such as Avanti Feeds, Apex Frozen Foods, and Trident were not spared either with all trading sharply lower as market participants scrambled to reduce risk-exposed positions.

Pharma stocks take a hit

Pharmaceutical stocks fell sharply as well, with Jubilant Pharmova, Ipca Laboratories, and Lupin losing between 2.5-3.3 per cent, and Dr Reddy’s, Cipla, and Sun Pharma declining 1-1.5 per cent.

The reaction came as the US is a major market for India’s high-volume generic drug exporters, which may now face a sudden jump from near-zero tariffs to among the highest globally.

Auto ancillary and engineering stocks such as Bharat Forge and Sona BLW witnessed intraday declines of 2-3 per cent yesterday, while electronics and IT stocks, including Wipro, Infosys, Hexaware, and TCS, lost 1-2 per cent, dragging the sectoral BSE IT index down over 1.2 per cent yesterday.

Also read: Modi must pay a price to tackle the new challenges from Trump’s US

Market-watchers see volatility persisting and expect investors to remain jittery until more clarity emerges on both the long-term shape of the tariffs and prospects for a resumed trade negotiation.

Sensex shocked by scale

There was little warning for the market. Devarsh Vakil, head of Prime Research at HDFC Securities, said, “The market consensus was expecting 15 per cent (US tariff), not 25 per cent. When the first tickers hit, you could sense the surprise and disappointment, especially in sectors like pharma and engineering.”

Vakil explained that the entire landscape for Indian exporters has shifted in a single day. “Pricing power is under threat. Even if some of the cost can be passed on, new contracts are likely to be harder to negotiate.”

Also read: India has 7 options to counter Trump tariff, assert sovereign rights

On the Nifty, Vakil warned that technical support levels risked giving way if foreign-selling accelerated.

Call for calm

Even as alarm rippled through the markets, some analysts urged calm, arguing that India's long-term fundamentals remain unchanged. Rajesh Palviya, Senior Vice President - Research at Axis Securities, noted that while deeply disruptive in the near term, the tariffs are unlikely to substantially derail India’s overall economic trajectory.

“We have strong domestic drivers, urban demand, infrastructure, and services,” Palviya said. “These will cushion some of the external blows. Both the US and India know that a protracted trade war is in no one's interest.”

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As he reviewed sector-by-sector losses, Palviya contended that after the initial shock, “markets will look for signals; if US-India trade talks resume, or tariffs soften, some of today's wounds could heal surprisingly fast.”

Uncertainty only constant

For India’s export-focused companies, the steep new tariffs are only part of the conundrum. The nature of Washington’s penalty for continued Russian trade was left vague, raising the spectre of further sanctions or supply constraints, especially on cheap Russian crude oil.

As a HSBC Investment report said, “The immediate effect will be to slow trade finance activity and increase risk in India-US corporate deals.”

Meanwhile, brokerage CLSA described market action as a “reset of risk,” noting that while the Sensex’s swoon is stark, the bigger issue is how global capital now views India’s ability to remain balanced between Washington DC and Moscow amid growing geopolitical polarisation.

Also read: Steep tariff for India, oil deal for Pak: What to make of Trump’s flip

“Global capital tends to punish ambiguity with risk premiums,” one strategist at CLSA noted privately, “especially when foreign positioning in India is already stretched and valuations are not cheap.”

Numbers game with imbalances

Even before tariffs became headline news, some in the financial community had flagged the oddity of how these duties are calculated.

An April note from JM Financial detailed a rarely-discussed wrinkle: the US figures its punitive tariffs by folding in domestic taxes like India’s Goods and Services Tax (GST). “This makes Indian trade barriers look artificially high, even though GST is something every domestic business faces, not just exporters,” the financial services group wrote.

That calculation “inflates” the apparent trade gap, fuelling a political narrative in Washington that may be out of step with economic facts.

Crucial test

Today, as exporters pore over contract terms and dollar forecasts, notes such as those from JM Financial take on new urgency. The mechanics of the tariffs themselves may make negotiation harder and resolution more complicated.

Also read: Sensex, Nifty tank in early trade as US announces 25 pc tariff on India from Aug 1

Analysts now see the coming weeks as a crucial test of both government resolve and private-sector agility. Vakil pointed out that long-term funds may “use the shakeout to position for eventual recovery,” but cautioned that for the next several weeks, pressure will persist on the rupee and any company heavily exposed to US demand.

CLSA echoed this sentiment, describing market action as “symbolic of a region-wide reset in emerging market risk pricing,” and predicting that volatility would subside only if clear, supportive signals emerged from trade negotiators on both sides.

Search for solutions

The ultimate trajectory for the rupee and broader markets now depends on how swiftly India can push ahead with diversification in both in its export markets and foreign policy alliances. The consensus among analysts is that this could become the impetus for fresh momentum in free trade negotiations with Europe, the UK and key ASEAN nations.

Axis Securities’ Palviya stressed that “adaptability is India’s edge”. He expects exporters to quickly reassess their strategies and look for cost rationalisation and new overseas channels. Yet, “If the US follows through with penalties on Russian-linked trade, it could mean more pain before relief,” he warned.

In April, JM Financial’s research team had anticipated this whiplash moment, warning that “as global supply chains shift and domestic consumption only partly absorbs the slack, India may well see its current account deficit widen; and the rupee come under more pressure, if this standoff persists beyond a few quarters.”

It's the Reserve Bank of India's job to monitor the currency and money markets, but analysts say that while tariffs are a near-term drag, India’s fundamentals are good.