Domestic equity benchmarks are set to open deep in the red on Thursday, July 31, after U.S. President Donald Trump imposed a 25 percent tariff and penalty on Indian exports. The GIFT Nifty index was trading with sharp cuts, down 175 points or 0.7 percent at 24,679 , at about 7:40 am.
U.S. President Donald Trump announced 25 percent tariffs and an additional penalty against India ahead of the August 1 deadline. In a post on Truth Social, Trump described India as America's "friend" but added that it will face 25 percent tariffs plus a penalty for buying Russian military equipment and oil. The US President reiterated that India has among the "highest tariffs in the world".
The move came as a surprise, as India and the U.S. were conducting substantial talks on a trade deal, leaving industrialists and economists concerned over Trump's sudden decision.
Nilesh Shah, MD, Kotak Mahindra AMC, believes that Dalal Street will have a negative reaction to the tariff update. "Despite the unpredictable policy making of the U.S., the market was expecting a tariff deal to work out as the U.S. and India's long-term strategic interests are aligned," he said.
Going ahead, in response to President Trump’s imposition of the tariffs, investors will reassess their strategies with a mix of caution and optimism. "Sectors like textiles, pharmaceuticals, and automotive components, which are key Indian exports, are likely to be most impacted and may see reduced investor interest in the short term," noted Utsav Verma, Head of Research - Institutional Equities, Choice Broking.
According to him, recent progress in trade negotiations suggests a constructive path forward, and a trade deal will eventually follow, provided both nations show the necessary political will. "In the short term, the market will try to shed off its complacency. We do not expect a huge knee-jerk reaction but a range-bound market focused on ongoing earnings," added Verma.
“The Indian market, in any case, is not in a good position, and it has nothing to do with U.S. tariffs. It has more to do with the corporate earnings and other local factors. Indian market has not done well in the recent past and is among the worst performers globally when compared with other leading equity markets,” Shankar Sharma stated.
"There could be some impact on the rupee. In the markets, the tariff news will have some impact on the sentiments but not an earth-shattering one," noted Sharma.
Certain sectors could see a strong reaction. Among these, Nirav Karkera, Head of Research at Fisdom, believes that IT ranks at the top of the list. Further, export-oriented sectors such as steel, aluminium, and auto component players will also see a sharp impact. Other sectors that could react include pharmaceuticals and textiles, which are sensitive to the U.S. market's consumption.
The markets are likely to shrug off the U.S. Federal Reserve's decision to keep the benchmark lending rate unchanged at the 4.25-4.5 percent mark for the fifth consecutive session in the July meeting. This move was largely priced in, with the CME Group's FedWatch tool indicating that 98 percent of market participants were expecting the Fed to stand pat.
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