Taking stock of Trump tariffs: Where do Indian markets go from here?

VOLATILITY IN EQUITY markets often creates an opportunity to buy quality stocks at attractive prices. The recent pullback in Indian equities, led by the tangle over U.S. tariffs, is offering investors a chance to buy stocks at cheap valuations. Employing a “buy the dip” strategy in such times is seen as a lower-risk approach to investing compared to entering the market when stock values are inflated at record highs, according to experts.

The Indian share market, in sync with global peers, has had a roller-coaster ride in April, initially on the downside and now, on the upside. In the first week of the month, the BSE Sensex and NSE Nifty50 nosedived over 5.5% each, while the volatility index or VIX (a barometer for measuring market uncertainty) spiked 80% to 22.79, its highest since June 4, 2024, triggered mainly by U.S. President Donald Trump’s tariff announcements.

On January 20, his very first day in office, Trump announced an “America-first Trade Policy” that sought to address the country’s large and persistent annual trade deficits in goods — including economic and national security implications and risks resulting from such deficits — and undertake a review of, and identify, any unfair trade practices by other countries. On February 13, he called for a review of the non-reciprocal trade practices of America’s trading partners. On April 2, he announced ‘reciprocal trade tariffs’ against all trading partners, with additional tariffs on each country depending on the nature of their individual ‘trade imbalances’ with the U.S. The extra tariff on goods imported from India was put at 26%, while those from China were to attract 34%. While these country-specific tariffs were to be operational from April 9, a uniform 10% additional tariff got implemented with immediate effect.

However, on April 9, Trump announced a temporary three-month pause on tariffs for almost every country except China, following the latter’s announcement of a ‘retaliatory tariff’ against products imported from the U.S. The U.S. President went on to exempt tariffs on certain products — for which import dependency was too big for the U.S. to take a chance — from China, too, in the following days, causing uncertainty in global trade and supply chains.

The pause on reciprocal tariffs for all but China helped restore some calm in the equity markets, with Indian benchmarks outperforming global peers.

Amid all the noises of ‘reciprocal tariffs’, “India-U.S. trade is set to transcend new boundaries,” says Soumya Kanti Ghosh, group chief economic advisor, State Bank of India.

The Sensex and the Nifty rose 8.5% each between April 11 and 23, even as global peers such as the Dow Jones Industrial Average and the Nasdaq Composite remained in the red.

The improvement in domestic macro indicators such as retail inflation and GDP growth, and back-to-back interest rate cuts by the Reserve Bank of India played a role in the rebound. In fact, in March, both the Sensex and the Nifty ended five straight months of losses — their longest losing streak in 29 years — helping the indices record 5% gains each for FY25.

The other major factor that contributed to the resilience of the market was sustained buying by foreign institutional investors (FIIs), who infused ₹32,465 crore in the last eight days since April 15.

“This is due to the relative underperformance of U.S. stocks, bonds and the dollar. In an environment of a weakening U.S. economy and depreciating dollar, FIIs may continue to buy, providing support to the market,” says V.K. Vijayakumar, chief investment strategist, Geojit Investments Ltd.

Optimism amid confusion

The recent rebound in the market reflects some degree of optimism with respect to global growth and domestic earnings, says Shrikant Chouhan, head, equity research, Kotak Securities. “But, there is still uncertainty on key issues (global growth, tariff/trade, U.S. dollar) that will shape markets, despite the optimism on earnings,” he adds.

On April 22, during a visit to India, U.S. vice president J.D. Vance announced that the two countries have officially finalised the terms of reference (ToR) for negotiating a bilateral trade agreement. The ToR was a vital step towards realising the vision of President Trump and Prime Minister Narendra Modi to more than double bilateral trade to $500 billion by the end of the decade, Vance said after his meeting with PM Modi in Delhi. “Both our governments are hard at work on a trade agreement built on shared priorities like creating jobs, building durable supply chains, and achieving prosperity for our workers… we’re going to see data centres, pharmaceuticals, undersea cables, and countless other critical goods being developed and built because of the American and Indian economic partnership”.

Trump has also said that talks with India on tariffs were “coming along great” and he expects the U.S. to have a trade deal with India. “The Prime Minister was here three weeks ago and they want to make a deal. We will see what happens,” Trump said.

On the earnings front, March-quarter results continue to hit hard though. “We have seen further earnings cuts in the ongoing Q4FY25 results season, with IT services, oil & gas, and consumable fuels sectors contributing to the bulk of the downgrades. Consensus earnings estimate for FY26E and FY27E, too, have seen downgrades in a few sectors and companies. We assume there will be more, as global and domestic growth slowdowns hit revenues. For now, we model 12% growth in the net profits of the Nifty-50 index for FY26E,” says Chouhan.

So, what should investors do now?

With the BSE Sensex reclaiming the crucial 80,000 mark for the first time in CY25, and the Nifty50 crossing the psychologically significant 24,300 level, most are cautiously optimistic at this stage.

“The overall market sentiment indicates that investors are becoming more selective and defensive. We believe FMCG, pharma, and BFSI sectors should perform well, especially where stocks are reasonably valued,” says Chouhan.

Meanwhile, Ajit Mishra, senior vice president, research, Religare Broking, advises investors to maintain a positive yet cautious approach “with a preference for hedged positions in the index”.

“The focus should be on identifying stocks with favourable risk-reward set-ups,” he adds.

But then, markets have an uncanny ability to surprise. Investors need to keep this in mind.

(With inputs from Joe C. Mathew)