India weathers the US tariffs storm, but brokers face enduring challenges

Key Takeaways

• Indian markets showed surprising resilience to the US tariff shock, due to strong domestic demand and less reliance on exports compared to other Asian economies.
• Investor confidence remains high, supported by stable economic fundamentals and optimism around future trade agreements with key partners like the US and UK.
• Broker firms must prepare for volatility, balancing growth with robust risk management and scalable technology to navigate an unpredictable global trade environment.

The announcement of a broad range of tariffs on US imports in April this year sparked a major sell-off in equities markets around the world. But the Indian capital markets have so far proved surprisingly resilient to this turmoil. Several different factors have helped markets to recover quickly from the threat of US tariffs on India, but the prospect of further shocks remains. If brokers and other market participants are to successfully navigate this shifting landscape, they need to remain flexible and plan for both growth and volatility.

Tariffs were a key part of the Republican platform in the 2024 US election, and these ideas became concrete plans on 02 April (so called “Liberation Day”). President Trump announced a baseline 10 percent tariff on imports from all countries other than Canada and Mexico, and a range of further country-specific tariffs. This included a 26 percent rate on imports for India. While India is less export-focused than other Asian economies, the potential impact for US-India trade in key sectors was still significant. In addition to goods like automotive parts, chemicals, and textiles, there were also concerns around services, like the globally successful IT and consulting sectors.

The immediate impacts of the Liberation Day announcements were pronounced. Markets fell across the world. However, India fared noticeably better than some regional peers. While the Nifty 50 opened with a 5 percent plunge (its worst since March 2020), it recovered to close only 3.2 percent lower, while the Sensex lost 2.9 percent. In contrast, the Hang Seng Index dropped 13 percent, while the Nikkei fell by 8 percent. And in the following weeks, the Indian markets seemed to shrug off the tariff threat quickly. There was an almost immediate bounce when President Trump announced a 90-day pause in new tariffs on 11 April. By the end of the month, markets had recovered from their initial losses, despite ongoing global volatility.

What is behind the resilience of the Indian markets? A key factor is strong domestic demand. While there was a sell-off from international investors following the tariff announcement, home-grown investors stepped in to bolster demand and limit the fall in prices. In particular, the growing and increasingly sophisticated retail sector helped to insulate the Indian markets from the tariff shock.

Once the dust settled on the initial announcement, the consensus from investors was that the fundamentals of the Indian economy remain strong. The continuing fall in bond yield spreads between India and the US demonstrates this. A strong response from government institutions has also contributed to overall investor confidence. For example, the Reserve Bank of India (RBI) has signaled a clear determination to defend the value of the Rupee, aiming to maintain it at an average of around 85 INR to 1 USD. There is a widespread perception that India will continue to be a stable policy environment, with sustained growth potential.

Investor optimism is also grounded in hopes that the Indian government will be able to sign trade deals with key partners, including the US. The signing of a wide-ranging agreement with the UK in May validated these expectations. While no further major agreements have been secured at the time of writing, continued progress in negotiations with the EU and US holds out the prospect that tariff barriers will be relatively short-lived.

The Indian markets have thus far shrugged off the impact of global economic and political volatility, including the looming impact of US tariffs. It seems that investor confidence remains unshaken, and that brokers can expect volumes to continue to grow. But even if the macro trend remains upwards, further shocks are likely. Broker firms need to plan for both growth and volatility. Technology solutions that can scale efficiently are vital to allow firms to manage growing trading volumes. Meanwhile, integrated risk management tools and reliable infrastructure are key to securely navigating market instability. In this demanding and unpredictable landscape, it’s more important than ever to have solutions and partnerships that you can trust.