Stock market indices Sensex and Nifty took a beating on Monday morning, as the US imposed tariffs on Canada, Mexico and China over the weekend, which would have implications for India. The Trump administration slapped a 25 per cent duties on Canadian and Mexican goods. What spooked the market more was an additional 10 per cent duty on China, above the current tariffs.
Following the tariff announcements, the dollar index rose 1.29 per cent to 109.77, sending Asian markets such as China and Japan tumbling up to 3 per cent. There are fears of the beginning of a US-China trade war. The development further dashed hopes of US Fed rate cuts ahead, as the rise in import duties in US may stoke inflation. While the development will relatively benefit Indian exports to the US, that should be negated by China’s reaction -- the likely price cuts.
Emkay Global said another round of dollar appreciation looks likely, which would hurt equities and the currency, making the February 2025 rate cut much more difficult. Canada and Mexico have vowed retaliatory tariffs against the US. China, on the other hand, said it will take Trump to WTO.
The BSE Sensex was trading at 76,828.13, down 678 points or 0.87 per cent. Nifty was down 218.80 points, or 0.93 per cent at 23,263.35. Larsen & Toubro Ltd fell 3.31 per cent to Rs 3,333.20. Tata Steel declined 3.12 per cent to Rs 128.80. NTPC Ltd, Tata Motors Ltd, Power Grid and Zomato slipped up to 2.4 per cent. IndusInd Bank. TCS, Reliance Industries, HCL Technologies, ITC Hotels, SBI and Adani Ports fell over 1 per cent each. A total of 2,043 BSE-listed stock declined while 862 shares were trading higher. A total of 42 stocks hit their fresh 52-week lows, while 95 shares hit their lower circuits.
That said, Emkay Global noted that the tariff action was far more benign than originally threatened. "Further downside risk would come from any direct action on India, but that is not our base case," it said as the brokerage suggested a target of 25,000 on Nifty for December-end.
Prashanth Tapse, Senior VP (Research), Mehta Equities said the Trump tariff could result in retaliatory measures from China and other countries on US imports. The sentimental impact may fuel pessimism in domestic markets on fears that similar US measures could be imposed on Indian imports as mentioned during his pre-election campaigns.
"Although global factors will continue to dominate the mood, local investors will also be looking forward to this week's RBI monetary policy announcement, its comment on interest rates and economic outlook," Tapse said.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said despite an excellent Budget, the market will be under pressure from the Trump tariffs and the heightened global uncertainty these ‘initial round of tariffs’ has triggered.
"It is important to understand that the 25 per cent tariffs imposed on Mexico and Canada are to punish them for issues like immigration and illicit trade in fentanyl. Trump may use tariffs again against other countries on non-trade issues. China’s response to the 10 per cent tariffs has been more responsible. For now, they have not reacted like Mexico and Canada by imposing tariffs on imports from the US. Instead, they are moving the WTO against the US action," he said.
"Now we don’t know how this will pan out. For now, India is not affected. Therefore, the impact on the Indian market will be less. But the spike in the dollar index to above 109.6 will trigger more selling by FIIs putting the market under pressure. Domestic consumption stocks will be relatively resilient since they stand to benefit from the income tax cuts announced in the Budget," he said.
Vikram Kasat, Head - Advisory, PL Capital - Prabhudas Lilladher said Asia kicked off what is likely to be a volatile day in global markets after Donald Trump followed through on his threat to hit Mexico, Canada and China with tariffs on imports into the United States.
"It will be fascinating to see how investors react to something they have known was coming and which is almost universally seen as damaging for economic growth and financial assets. They won't be surprised, but they will still be shocked."
UBS in a note said the Union Budget 2025 provided a boost for urban consumption and rural housing but the capex increase was muted.
"Rs 1 lakh crore urban consumption boost is positive for consumer durables, two wheelers, staples, consumer finance, deposit growth for banks, reduce retail stress). Rural increase is low except rural housing. Capex increase is weak but flattish for roads and highways and railways," it said.