What could be the impact of Trump’s tariff flip flop on Indian stock market?

Donald Trump’s latest tariff threats have added volatility to global stock markets, with India emerging as a key player in the US president’s trade realignment strategy.
India put a 9.5% tariff on US goods, while the US imposes just 3% on Indian products. As reciprocal tariffs loom, industries like automobiles, pharmaceuticals, textiles, and steel are at risk. Despite a short rally this week, the Nifty remains down 14% from its peak, with smallcaps in bear market territory. Over $15 billion has been pulled out by Foreign Institutional Investors (FIIs) in 2025 alone.
Foreign Portfolio Investors (FPIs) have maintained their selling trend in Indian equities this March, with total equity outflows reaching Rs 24,753 crore as of March 7, bringing the year-to-date total to Rs 1,37,354 crore in CY25, according to ET report.
Volatility and risk aversion
India is particularly vulnerable to tariff hikes, with key sectors facing significant threats. The Indian Rupee has weakened, and foreign investment is retreating due to concerns about a slowdown.
Ross Maxwell, Global Strategy Operations Lead at VT Markets said that India’s automobile, pharmaceutical, textiles, and steel sectors could face severe impacts. However, India’s diplomatic approach—focused on trade negotiations and tariff rationalization—could help mitigate risks. YES Securities suggests reducing tariffs on US imports like steel and encouraging American companies like Tesla to enter India, which could serve as leverage against potential retaliatory tariffs.
Temporary negotiations
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, explains that markets perceive Trump’s moves as temporary negotiations rather than long-term tariff impositions, acknowledging that sustained tariffs could hurt the US economy. In response, China and Germany have already implemented domestic stimulus measures to counterbalance the effects of Trump’s policies, adding another layer of complexity to the global economic landscape
Pharma sector and market sentiment
The pharmaceutical sector, which holds 35% of the US market, faces short-term challenges but may benefit in the long term due to India’s competitive advantage over China. Amisha Vora, Chairperson & MD of PL Group, emphasized that despite tariff concerns, India remains more competitive than China, which faces a 20% tariff. Sandip Sabharwal, a market expert, pointed out that large-cap pharma stocks like Sun Pharma and Lupin have already experienced sell-offs but remain well-positioned unless tariffs escalate significantly.
Despite global uncertainties, Indian markets show resilience. Vinod Nair, Head of Research at Geojit Financial Services, noted that India’s markets have remained strong despite equity outflows from emerging markets.
Amisha Vora sees the current dip as an investment opportunity. “With ongoing reforms and India’s demographic advantage, the market will likely perform better, even amidst trade wars,” Vora told ET suggesting a potential correction of 4-5% in the short term.
(Disclaimer: The opinions, analyses and recommendations expressed herein are those of brokerage and do not reflect the views of The Times of India. Always consult with a qualified investment advisor or financial planner before making any investment decisions.)