US tariffs on India fail to rattle its stock markets, but firms need to prepare for volatility as the ‘new normal’

Key Takeaway

• The Trump administration’s two-stage imposition of a total 50 percent tariff on exports from India to the US caused initial dips in local markets, but Indian stock indices quickly rebounded.
• The bounce-back reflects the domestic focus of the Indian economy.
• India’s stock markets have historically shown resilience to geopolitical and economic shocks, but in an environment of “structural volatility”, market participants need to be prepared for turbulence.

Despite concerns over Trump’s tariffs and their potential impact on exports, business, and the economy, Indian stock markets are unlikely to take a significant hit. Historically, Indian bourses have mostly been resilient in the face of geopolitical shocks, and even high-tension events such as India-Pakistan conflicts have had minimal lasting impact on them.

This blog delves into why US tariffs on India and their impact are unlikely to rattle the Sensex or the Nifty. It also discusses why Indian markets often stay immune to major geopolitical developments.

Trump’s tariffs and their impact on Indian stock indices

On 31 July 2025, a day after the US imposed a 25 percent tariff on Indian imports, markets opened on a weak note, as expected. The Sensex plunged 800 points – around 1 percent – and the Nifty followed suit. But in a surprising turnaround, both indices bounced back sharply by the end of the session.

Again, on 06 August, President Trump announced an additional 25 percent on Indian exports (as a penalty for buying oils and weapons from Russia), pushing the total tariff burden on Indian goods to 50 percent. He also signaled that more “secondary sanctions” might be announced in the coming days.

Following the news, the Sensex and the Nifty 50 initially dropped by almost 1 percent during the 07 August session, but recovered sharply towards the end of the day. Finally, the Sensex closed 79 points higher at 80,623.26, while the Nifty 50 settled at 24,596.15, up 22 points.

Reasons why Indian markets are brushing off Trump’s tariff shock

1. The quick recovery on 31 July and on 07 August reflects investors’ sentiments that Trump’s tariffs will hit export-intensive sectors – such as pharma, textiles, auto components, leather goods, gems and jewelry, and some food exports – but the wider market is unlikely to be affected.
2. Analysts believe that corporate earnings and other domestic factors largely drove the recent market dip, with the US tariffs on India having little to do with it.
3. India is less export-focused in general than other Asian countries, and specifically is less exposed to the US. Total exports to the US constitute a mere 2 percent of India’s GDP. In contrast, Vietnam’s exports to the US make up nearly 27 percent of its GDP.
4. Foreign Portfolio Investors (FPIs), who had factored in the impact of tariffs on the Indian economy and trade, have already pulled out their funds, as per experts. They were on a selling spree over the past two months.
5. Experts suggest that the 50 percent tariff may be temporary and could eventually be revised downward. With negotiations still ongoing, a more comprehensive trade deal is expected by October or November. As a result, investors are currently adopting a wait-and-watch approach.
6. While the tariff may negatively impact Indian exports and economic growth prospects in the short term, analysts say it will not be a ‘long-term, earth-shattering one’.

India’s decade of growth in the face of turmoil

In just 10 years, India’s economy has almost tripled in size and has also witnessed strong stock market growth. This is despite the challenging macroeconomic environment that impacted other emerging markets during the same period. One of the best examples of this is the market recovery since the COVID-19 pandemic.

The Indian economy shrank by 5.8 percent in 2020–21 (the peak COVID period) but showed a strong rebound with 9.1 percent growth in 2021–2022. In the following years, growth remained steady – 7.2 percent in 2022-2023 and an estimated 6.8 percent to 7.3 percent in 2023–2024. The Indian rupee has also been one of the strongest among emerging market currencies.

On the other hand, Indian bourses have doubled in size since the crash. For example, the Sensex grew from about 40,000 points to 80,000 points, and the Nifty grew from nearly 11,000 points to 24,000 – they even outperformed the tech-heavy Nasdaq.

Why are Indian bourses usually immune to global events?

1. According to the Ministry of Finance, India’s real GDP grew by an estimated 6.5 percent in 2024– 2025, the highest among the major economies, and this is expected to continue in the next couple of years. The sustained performance is driven by strong domestic demand, which in turn cushions the markets from global trade shocks and external slowdowns.
2. As previously mentioned, India is less dependent on exports (around 21–22 percent of GDP), so global trade disruptions have a relatively limited direct impact.
3. During economic uncertainty or geopolitical turmoil, the Indian central bank and the government are quick to respond with coordinated policy measures, such as timely interest rate adjustments, liquidity injections into the banking system, and so on. Such swift actions help calm investor nerves, maintain systemic liquidity, and prevent a sharp selloff. India is widely perceived to be a stable political and regulatory environment, making it an attractive market for Foreign Indirect Investment (FIIs).
4. Certain Indian sectors, especially banking, infra, FMCG, auto, and capital goods, have experienced steady earnings growth over the past few years, even during global headwinds. This supports equity valuations even during external shocks. Even in the current environment, the markets are reacting more to Q1 results and showing limited concern about Trump’s tariffs.
5. India has a strong domestic investor base. Monthly SIP inflows reached record levels in 2024, reflecting strong local investor confidence. While FIIs often withdraw from the Indian stock markets during periods of global volatility, domestic investors take the opportunity to buy at the dip, helping to stabilize the market and soften the blow.

Conclusion

The US tariffs are the latest in a series of shocks to global markets, but the Indian economy has so far proved resilient to this threat. This is due to several factors, not least its strong, domestic-led growth. Nonetheless. India is navigating an increasingly turbulent landscape.

At a recent ION webinar, representatives from ION Markets, Treasury, and Commodities discussed how an increasingly interconnected global economy is creating a situation of “structural volatility”, where disruption is the new normal. This presents enormous challenges to market participants, but also creates opportunities for firms that are properly prepared. Integrated trading, risk, and compliance systems enable agile decision making, allowing firms to respond quickly to rapidly changing market conditions. Algorithmic trading and smart order routing systems empower firms to put these decisions into action quickly and effectively. Cloud-native architecture can help technology platforms to scale rapidly while remaining stable, helping firms to remain operational during the spikes in trading volumes that accompany market volatility.

So far, India has ridden out the threat of tariffs due to its underlying fundamental strengths. But with volatility now a permanent feature of the global markets, firms need to ensure their systems and processes are equipped to navigate this uncertain landscape.