Tariffs, Tensions & Turnarounds

Indian markets plunged in line with global cues post Trump tariffs but partially rebounded on tariff pause and RBI’s rate cut 

The last fortnight proved to be a turbulent ride for investors, as global markets experienced a sharp decline following U.S. President Donald Trump’s announcement of reciprocal tariffs. Citing a long list of countries he claimed were “robbing” the U.S., Trump imposed significant tariffs, including a 26 per cent tariff on Indian exports. This triggered a widespread market sell-off, with both benchmark indices and broader markets witnessing a bloodbath. Investor sentiment was rattled by looming fears of a potential U.S. economic recession, which could spill over to global economies, disrupt supply chains, and challenge sectors heavily dependent on exports.

However, a subsequent 90-day pause on tariff implementation brought relief. Markets rebounded strongly, reversing a large portion of earlier losses. Interestingly, Indian indices, which had been under pressure for an extended period, displayed relatively muted reactions—both in terms of downside and recovery—compared to global counterparts. Frontline indices BSE Sensex and Nifty 50 managed to contain their fortnightly losses to around 3 per cent. Reflecting the market weakness, the BSE Mid-Cap Index also registered a similar decline of 3 per cent. Surprisingly, the BSE Small-Cap Index fared relatively better, limiting its losses to just 1.8 per cent during the same period.

The factors that had been weighing down domestic markets appear to be easing. Inflation, one of the key concerns, has softened and now falls within the RBI’s target range. This development has paved the way for the Reserve Bank of India’s Monetary Policy Committee (MPC) to take a supportive stance. In a unanimous decision, the MPC opted to reduce the policy repo rate by 25 basis points, bringing it down to 6 per cent. The rate cut decision sparked renewed optimism in the FMCG sector, propelling the BSE Fast Moving Consumer Goods (FMCG) Index to become the only sectoral index to end the fortnight in the green.

It climbed nearly 5 per cent within just three trading sessions. In contrast, all other sectoral indices closed in the red, with information technology, metals, and real estate sectors bearing the brunt of the damage. During the fortnight, the BSE Information Technology Index recorded the steepest decline, plunging by nearly 11 per cent. The sharp correction mirrored the sell-off on Wall Street, as growing concerns over a potential recession, project delays, margin pressure, and looming risks to U.S. software exports—stemming from possible retaliatory measures by other nations—dampened investor sentiment across the sector.

The Q4FY25 earnings season kicked off with IT industry leader Tata Consultancy Services reporting subdued growth, muted hiring trends, and cautious management commentary. As more companies prepare to announce their results, these earnings will play a crucial role in shaping market direction and guiding investor sentiment in the coming weeks.