US Tariff Shock: Here's what it means for India's stock markets and economy

Global equity markets took a hit on Thursday after US President Donald Trump came through on his election promise by imposing “discounted” reciprocal tariffs across countries. Following weak global cues, the benchmark equity index BSE Sensex traded 0.50% lower in the morning as the US President imposed a 26% reciprocal tariff on Indian imports.

Market watchers believe the US decision to impose reciprocal tariffs on India, Japan, and others may trigger short-term volatility in global markets, particularly in sectors like automobiles, steel, and agriculture.

Krathi Bathini, Equity Strategist, WealthMills Securities said, “With the announcement of higher-than-expected tariffs, global investor sentiment is likely to take a hit leading to heightened volatility, even as some countries may seek to negotiate a deal. On the other hand, some countries are likely to reply with retaliatory tariffs, which can have dire consequences for the global economy. Hence, uncertainty is likely to remain the operative word for global markets in the coming days as well.”

There are expectations that the tariffs may disrupt global trade and, therefore, global growth. This is likely to seep into domestic growth and earnings. All eyes will be on how countries will retaliate.

Pranay Aggarwal, Director and CEO, Stoxkart, believes that Indian equities could face pressure due to potential retaliatory measures, impacting export-driven sectors. The immediate tariff enforcement suggests urgency, possibly disrupting supply chains.  

“For India, heightened trade tensions may weaken the INR and deter FDI, though domestic stimulus could offset risks.” Aggarwal said adding defensive stocks such as FMCG and utilities may outperform, while cyclical sectors like automobile and metals could underperform. Long-term implications hinge on negotiation outcomes, but near-term caution is advised.

As per Ionic Wealth by Angel One, the major impact will come from a global growth slowdown. India’s top-line is heavily dependent on exports and a slowdown will adversely affect earnings which will keep equity returns moderate.

Sonam Srivastava, Founder and Fund Manager, Wright Research PMS said, “While India's pharmaceutical sector has been exempted, which is a positive given its large export exposure to the US, the implications across other sectors are mixed.” The BSE Healthcare index traded over 2% up in the morning trade.

Srivastava added that electronics manufacturing services (EMS) may benefit relatively, as India’s tariff rate is lower than those on Vietnam and China, potentially making India a more attractive destination in global supply chain realignments.

“The broader market is likely to experience near-term volatility. Tariffs across multiple geographies mean higher input costs globally, which could push US inflation higher and complicate the Fed’s rate cut trajectory—something the markets had been relying on. As a result, equities may remain under pressure, especially sectors sensitive to global demand and trade,” she said.

Srivastava also believes that from a medium to long-term perspective, this move may push countries toward de-globalization and bilateral trade pacts, creating opportunities for India to emerge as a neutral, stable, and strategic partner. For investors, this is a time to stay cautious, focus on quality, and watch macro developments closely. Markets may remain uncertain until it gets clarity on retaliatory measures and the Fed’s stance.

Overall, global indices traded cautiously as the majority of the markets were closed before White House release of the detailed tariff rollout. The impact will be felt more profoundly in today’s session. Asian stocks traded lower, with Nikkei, Hang Seng seeing a major downward bias.