The equity benchmark indices Sensex and Nifty declined over 1 percent on Tuesday, marking their steepest fall in over three months, after the US issued a draft notice proposing additional tariffs on Indian imports. The benchmarks last saw a similar sharp drop on May 20.
Sensex benchmark tumbled 849.37 points, or 1.04 percent, to close at 80,786.54. During the day, the index nosedived 949.93 points, or 1.16 percent, to hit a low of 80,685.98. The Nifty dropped 255.70 points, or 1.02 percent, to finish at 24,712.05. In the intra-day session, it dived 278.15 points, or 1.11 percent, to hit a low of 24,689.60.
Sun Pharmaceutical Industries, Shriram Finance, Tata Steel, Dr. Reddy's Laboratories and Coal India were among the major laggards, declining up to 3 percent intraday.
Key factors behind the decline:
1) US tariff concerns: The United States has issued a draft order to implement an additional 25 percent tariff on Indian imports, effective August 27. The Department of Homeland Security said the move was linked to "threats to the US by the government of the Russian Federation," with India included under the new levies.
Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd, said "The biggest headwind for Indian markets remains whether Nifty can scale the 'Wall of Worry' around the 50 percent Trump tariff set to kick in on August 27, which threatens to make almost all of India's USD 86.5 billion exports to the US commercially unviable."
US issues notice for extra 25% tariff on India beginning August 27
2) Weak global cues: Asian markets were trading lower, with Japan’s Nikkei 225, South Korea’s Kospi, Hong Kong’s Hang Seng and Shanghai’s SSE Composite in the red. US markets also closed lower overnight, while Wall Street futures pointed to further weakness, raising concerns of continued pressure on emerging markets, including India.
3) FII selling: Foreign Institutional Investors (FIIs) offloaded equities worth Rs 2,466.24 crore on Monday, according to exchange data. Analysts said sustained outflows remain a drag on market sentiment and liquidity.
4) Rupee under pressure: The rupee declined 22 paise to 87.78 against the US dollar in early trade on Tuesday amid concerns over the impending US tariffs. Forex dealers said strong dollar demand from importers and tariff uncertainty weighed on the domestic currency.
5) Volatility index: The India VIX, a measure of market volatility, rose more than 5 percent to 12.38, signalling higher risk perception among investors.
Technical view
Anand James, Chief Market Strategist at Geojit Financial Services, said "Inability to close above the 25,000-25,033 region yesterday suggests that buyers are not keen on chasing prices higher. This leaves room for dips. Upswing possibility could diminish if Nifty slips below 24,870, but it would require a direct fall below 24,740 to initiate downside plays."
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