Trump’s reciprocal tariffs take effect tonight: 4 ways Indian stock markets could be hit

US President Donald Trump's reciprocal tariffs regime is expected to unleash a new wave of uncertainty in global trade order and lead to short-term volatility. Inflationary in nature, the decisions could have implications on Fed policy. For India, automobile, pharma and IT sectors are expected to take a hit.

Indian markets this week have not given clear trends, closing with deep cuts on Tuesday while settling positive today. The IT, auto pharma sectors witnessed strong buying action.

Trump’s decision on reciprocal taxes introduces a new wave of uncertainty in global trade dynamics, Amit Jain, Co-Founder of Ashika Global Family Office Services said, as he expects short-term volatility in Indian equity markets, especially in export-driven sectors like automobile, pharma and IT.

The tariff regime will kick-in shortly. The Trump administration has already announced 25% tariffs on steel and aluminium imports to the US and it is in effect from March 12. Recently a 25% tariff on auto and auto components was announced along with additional 25% duty on light trucks.

Echoing a similar sentiment, Narinder Wadhwa, Managing director & CEO of SKI Capital Services said that Trump's moves could have significant repercussions for global markets including the US and India.

Impact on Indian stock markets:

1) FPI flows

Wadhwa said that the repercussions could be in the form of FPI outflows. "Indian markets typically react negatively to protectionist US policies, as they increase global risk aversion. FPIs could reduce exposure to emerging markets, leading to volatility," Wadhwa said.

In the past two sessions, the foreign institutional investors (FIIs) have sold domestic shares worth Rs 6,336. They were net sellers in the January-March period and so far in 2025, who have sold shares worth Rs 1,22,910 crore.

2) Export-Oriented Sectors

Wadhwa reiterated Jain's assertions, saying that if tariffs target key sectors like pharmaceuticals, Indian companies with significant US revenue could face headwinds. However, if tariffs mainly focus on China, Indian exporters might benefit from some trade diversion, he added.

3) Rupee Volatility

The late rally in the Indian rupee has lifted the currency to a 3-month high, but experts do not rule out a pause following tariff announcements by the United States.

A risk-off sentiment could weaken the rupee, affecting imported inflation and companies with foreign debt, Wadhwa of SKI Capital said.

4) Impact on IT stocks

While no direct impact on the IT sector is envisaged, the tariff war is seen to be inflationary and may have an impact on the US economy as well. This will keep the Indian IT services providers on the edge, given a lion's share of revenue coming from the US. The Street fears that tech spending could go down as a result of this.

Tailwinds

Notwithstanding the headwinds, domestic factors could lend support to Indian markets.

Jain sees India’s strong domestic consumption story remaining intact, which in his view will offer resilience. His advice to investors is to brace for market fluctuations while not losing sight of the long-term opportunities in sectors less impacted by global trade tensions.

Domestic-facing stocks could outperform even in market downturns, Wadhwa opined.

Also Read: Tariff tornado: Why Trump’s trade tempest won’t end so easily tonight on April 2

Contra View

Market expert Sandip Sabharwal expects some short-term aberration for domestic pharmaceutical companies if tariffs come. "Given the fact that what they are making... is not easily replicable at the cost at which they make, in all probability the cost will just be passed through and the impact will only be short term," he opined.

Echoing a similar sentiment, Emkay said that auto, pharma and electronics are far better placed than feared though it appeared that India could be among the worst hit nations as per broad reciprocal differentials.

Emkay's analysis finds that in the broad country-level tariffs, all of India’s US exports could face a 10% tariff, causing a loss of $6 billion in exports (0.16% of GDP). It could rise to $31 billion at 25% tariffs.

Also Read: April 2 showdown: A 48-hour stock market strategy to get 'liberation' from Trump’s tariff pain

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