Trump tariff threat: What it means for stock market investors in India

Donald Trump’s latest tariff threats have injected fresh volatility into global stock markets, with India finding itself in the crosshairs of the U.S. president’s push for trade realignment. With India’s effective tariff rate on U.S. goods at 9.5%, compared to the 3% that the U.S. imposes on Indian goods, the threat of reciprocal tariffs looms large, sparking concerns across key industries, from automobiles and pharmaceuticals to textiles and steel.

Even after this week’s relief rally, Nifty is still down around 14% from peak while smallcaps and microcaps are locked in bear market territory as FIIs have pulled out over $15 billion from Indian stocks in 2025 alone.

Markets React: Volatility and Risk Aversion

Ross Maxwell, Global Strategy Operations Lead at VT Markets, said India is exposed to the threat of increased tariffs on their exports to the US and sectors such as the automobile industry, pharmaceuticals and textiles could be impacted.“There are also challenges facing the steel industry, and the Indian Rupee has weakened against the USD as some foreign investment has been pulled due to concerns about a slowdown in the Indian economy,” Maxwell said.Despite the immediate risks, India has strategically opted for a conciliatory approach, setting itself apart from other nations by engaging in proactive trade diplomacy. YES Securities notes, “By pursuing trade negotiations, rationalizing tariffs, and embracing competitiveness over protectionism, India is laying the groundwork for a stronger economic partnership with the United States.”

One of India’s possible moves could involve reducing tariffs on US imports like steel or easing entry barriers for American companies such as Tesla. This could serve as a bargaining chip in mitigating potential retaliatory measures from Washington.

Also read | FIIs don’t care whether it’s capex or consumption stocks. Selling spree hits most sectors

Pharma Sector: Short-Term Pain, Long-Term Gain?

The pharmaceutical sector, which commands a 35% share in U.S. markets, is vulnerable but may find a silver lining. Amisha Vora, Chairperson & MD of PL Group, points out, “There would be some tariffs, but compared to China’s 20% tariff, India will still have a competitive advantage. Additionally, a weaker dollar due to rising inflation could slow the outflow of funds from emerging markets like India, bringing liquidity back.”

Market expert Sandip Sabharwal concurs, stating that large-cap pharma companies like Sun Pharma and Lupin have already seen a sell-off due to tariff concerns. “Unless we see massive tariffs imposed, these companies are reasonably placed,” he adds.

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Trump’s Flip-Flop and Global Reactions

Trump’s inconsistent tariff policies have only added to market jitters. Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, underscores this uncertainty: “Markets feel that Trump is keen to negotiate deals rather than stick to high tariffs for the long term. This is an acknowledgment that prolonged tariffs will impact the US economy, too.”

China and Germany have already taken steps to counterbalance Trump’s moves by implementing domestic economic stimulus measures, further shifting global market dynamics.

While India is maneuvering carefully, risks remain. YES Securities outlines three key concerns – dumping by China and other Asian countries, currency pressures and impact on industrial competitiveness.

Investor Sentiment: Large Caps a Safer Bet?

Despite global turmoil, Indian markets have shown resilience. Vinod Nair, Head of Research at Geojit Financial Services, notes, “The ambiguity surrounding US tariffs has led to risk aversion and equity outflows, particularly from emerging markets. However, Indian markets have demonstrated resilience, and a recovery in corporate earnings could significantly improve domestic sentiment.”

With a potential correction of 4-5% in the short term, Vora sees this as an opportunity: “This is a good time for investments. India’s demographic advantage is immune to trade wars, and with ongoing reforms, corporates and markets will continue to perform better.”

As global trade tensions escalate, India’s ability to balance openness with resilience will determine its long-term success in navigating these turbulent waters.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of The Economic Times)