Nifty stumbled on Trump’s reciprocal tariffs uncertainty

·       Wall Street also slid as Trump is slated to announce auto tariffs later in the day

·       India is trying to defer Trump’s ‘Liberation Day’ reciprocal tariffs implementations from April 2 by starting BTA formally and reducing sin tariffs

·       Dalal Street is also concerned about Trump’s Secondary tariffs on Venezuelan oil exports, which may affect India to some extent

·       Trump may also use the H1B Visa as a weapon against India’s IT export service revenue if India does not fall in line and reduce high tariffs, GST, and other taxes on US goods

·       Domestic policies and producers may not be yet in place to increase the efficiencies and quality of Indian goods to compete globally

India’s benchmark stock index Nifty made an impressive comeback in the last two weeks; recovered almost 7% in March (till the 25th) after plunging around 15% in the last 4-months. Between October 2024 and February 2025, India's benchmark stock index, the Nifty 50 tumbled significantly. Nifty made a low of around 21965 in early March’2025 after making a life time high of around 26275 in late September’2024. Thus Nifty corrected almost 4300 points or around 16%, well into technical correction territory of below 10% from the life time high, but just stopped short of the technical bear market territory of 20% correction from the top. The meltdown of India’s Dalal Street was influenced by a combination of global and domestic factors, leading to widespread investor concern and market volatility.

The primary reasons behind the plunge of the Indian stock market may be attributed to various reasons:

·       Tepid earnings growth

·       Stretched valuation

·       India’s economic slowdown

·       Hawkish RBI and elevated borrowing costs

·       Elevated & sticky inflation and higher cost of living,

·       Weak labor market,

·       Subdued discretionary consumer spending,

·       Weakening local currency (INR),

·       FII exodus

·       SEBI regulatory tightening for retail traders in FNO

·       Trump trade war tantrum and weak global/US cues

·       The concern of Trumpcession in the US and synchronized global recession as a result of Trump’s policy uncertainty on tariffs, immigration, deportations, and regulations

·       Trump’s threat of reciprocal tariffs on Tariff King India

Overall, the market is concerned and also quite confused about Trump’s various types of tariffs, so far Trump talked about:

·       Primary

·       Secondary (like 25% tariffs on those countries, which buy Venezuelan oil & gas)

·       Sectoral

·       Reciprocal

·       Targeted

·       Flexible

Trump's Stance and Potential Exceptions

Trump's Comments: Trump has stated that while he may offer some countries breaks on tariffs, he does not plan to make many exceptions.

Sector-Specific Tariffs: The White House is considering limiting the scope of reciprocal tariffs by sector, potentially excluding industries like cars, pharmaceuticals, and semiconductors.

Wall Street as well as Dalal Street also recovered in the last few days in hopes of a less hawkish Trump trade war approach. Trump is scheduled to celebrate “Liberation Day” on April 2, 2025, as Trump will announce his ‘huge reciprocal tariffs on those countries, which are ripping off the US for many years’. However, Trump is maintaining an absurd narrative that he is incorporating an External Revenue Source-ERS to collect those huge tariffs worth billions of dollars from exporters (like China, and India). But in reality, everyone including Trump also knows very well that these tariffs or import duties/taxes will be paid by US importers and not foreign exporters and will be eventually borne by the US consumers. Trump is providing some tax cuts on the one hand for Americans, while also levying fresh taxes on another hand through his bellicose tariff policies.

Thus Trump is now also looking anxious and sounding cautious amid the concern of a high potential stagflation-like economic situation in the US as a result of his draconian trade war policies and uncertainties. Trump is now gradually scaling back his hawkish trade war rhetorics into various other tariff narratives like targeted, flexible, etc. Trump may even postpone his ‘Liberation Day’ celebration slated on 2nd April for another six months to pave the way for bilateral trade agreements (BTA) for high tariffs countries like India, which have exorbitantly higher import duties on various foreign and US goods.

India's total exports to the United States, including both goods and services, have shown significant growth in recent years. Based on the most recent available data for FY24, India's exports to the U.S. were valued at approximately $83.74 billion. This figure encompasses goods such as pharmaceuticals, diamonds, electronic equipment, jewelry, and petroleum products, as well as services like IT, business process outsourcing, and technical services.

In the same period, India's imports from the U.S., including goods and services, amounted to around $47 billion. Major imports include mineral fuels, precious stones, machinery, and electrical equipment. This results in a trade surplus for India with the U.S. of approximately $36.74 billion for FY 2023-24.

Goods Exports: In calendar year 2023, goods exports to the U.S. were valued at $75.81 billion (UN COMTRADE data).

Services Exports: India consistently exports a significant amount of services to the U.S., estimated at around $28-30 billion annually in recent years, contributing to the total export figure.

Trade Balance: The surplus reflects India's strong export performance, particularly in pharmaceuticals, gems and jewelry, and IT services, outweighing imports of U.S. energy products and machinery.

The trade relationship between the US and India remains robust, with India maintaining a consistent surplus with the U.S., its largest trading partner.

Trump’s Reciprocal tariffs-Implementation and Impact:

The United States, under President Trump, has announced plans to implement reciprocal tariffs on imports from countries with higher duties on U.S. products, including India. These tariffs are scheduled to take effect on April 2, 2025, and could impact approximately 87% of India's $66 billion exports to the U.S. The reciprocal tariffs are set to be implemented on April 2, 2025. However, President Trump has indicated that not all countries will face these tariffs immediately, and some might receive exemptions.

Trump has repeatedly emphasized this policy as a cornerstone of his “America First” trade agenda, aiming to address what he describes as unfair trade imbalances. India, with its relatively high tariffs on U.S. goods, has been a focal point in his rhetoric. During a March 7, 2025, statement from the Oval Office, Trump claimed that India had agreed to cut its tariffs "way down" in response to his administration’s pressure. The reciprocal tariffs are designed to match the duties that other countries impose on American exports, with Trump specifically citing India’s tariffs exceeding 100% on certain goods, such as automobiles and motorcycles, compared to the U.S.’s lower rates (e.g., 2.4% on Indian motorcycles). India's exports to the US, valued at $66 billion, could be significantly affected, with an estimated 87% of these exports potentially facing reciprocal tariffs. Key sectors like pharmaceuticals and automotive exports, worth $11 billion, are particularly vulnerable.

Potential Impact on India

India's merchandise (goods) exports to the US, valued at $66 billion, could be significantly affected, with an estimated 87% of these exports potentially facing reciprocal tariffs. Key sectors like pharmaceuticals and automotive exports, worth $11 billion, are particularly vulnerable. Analysts estimate that these tariffs could lead to annual losses of up to $7 billion for India's economy. Sectors such as chemicals, metals, jewelry, automobiles, pharmaceuticals, and agriculture are particularly vulnerable due to their significant export volumes and existing tariff disparities.

Export Sectors at Risk: India’s exports to the U.S., valued at approximately $87 billion in 2024, include pharmaceuticals ($8 billion), gems and jewelry ($8.5 billion), textiles, and agricultural products. High tariff differentials—such as India’s 39% average on agricultural goods versus the U.S.’s 5%—could make these exports less competitive if reciprocal tariffs are applied at the product level. For instance, a report by Citi Research estimates potential annual losses of up to $7 billion for India, particularly affecting chemicals, metals, and jewelry.

Economic Impact: Studies suggest a mixed outlook. Morgan Stanley predicts that a uniform 10% tariff increase could reduce India’s GDP growth by 5-10 basis points from the current 6.6% estimate for 2025-26, driven by an 11-12% drop in exports. However, SBI Research argues the impact might be limited to a 3-3.5% decline in exports, offset by India’s diversification into manufacturing and services and new trade routes via Europe and the Middle East.

Trade Surplus Pressure: India’s trade surplus with the U.S. ($45 billion in 2024) could narrow if tariffs disrupt export flows. The rupee might weaken further as demand for dollars rises to pay for increased U.S. imports, a scenario highlighted in economic analyses. Above all, India has the largest trade surplus with the US only among all big trading partners against a trade deficit with most of the other. India’s FX reserve is largely dependent on the US trade surplus and thus Trump’s reciprocal tariffs strategy may affect Indian Rupee meaningfully.

Sector-Specific Vulnerabilities: Agriculture, automobiles, and pharmaceuticals face the highest risks due to significant tariff gaps. For example, India’s 100% tariff on U.S. motorcycles could prompt a matching U.S. tariff, while pharmaceuticals might lose competitiveness in the U.S. market.

India's Response and Strategic Measures: India's Plan of Action

In anticipation of these tariffs, India is considering several strategic measures:

Tariff Reductions on U.S. Imports: India is contemplating lowering tariffs on over half of U.S. imports, valued at $23 billion, to protect its exports from the impending U.S. tariffs. This proposal is contingent upon securing relief from the U.S. regarding the reciprocal tariffs. India is already reducing very high tariffs on US alcohol, Super Bike, and EVs (Tesla) to keep Trump, and Musk in a good mood.

Import Duty Exemptions: The Indian government has announced the removal of import duties on 35 items essential for manufacturing electric vehicle (EV) batteries and 28 items related to mobile phone production. This initiative aims to bolster local manufacturing and enhance export competitiveness in these sectors.

Non-Negotiable Tariffs: Tariffs on essential items like meat, corn, wheat, and dairy products remain non-negotiable, while reductions in tariffs on almonds, pistachios, oatmeal, and quinoa are possible.

Bilateral Trade Negotiations: India and the U.S. are engaged in negotiations to resolve tariff issues and establish a mutually beneficial trade agreement. Discussions have focused on reducing tariffs and expanding trade in sectors such as artificial intelligence, semiconductors, and strategic minerals. India and the US are negotiating a BTA, with the first phase expected to be finalized by the fall of 2025 (September). The formal announcement of the US-India BTA discussion may start by April 2nd, paving the way for a potential postponement of the implementation of Trump’s reciprocal tariffs.

India’s response to Trump’s reciprocal tariffs is evolving, with a mix of negotiation, mitigation, and strategic adjustment:

Trade Negotiations: India’s Commerce Minister Piyush Goyal has been actively engaging with U.S. officials, including a trip to Washington in early March 2025 to meet U.S. Trade Representative (USTR) Jamieson Greer. The goal is to finalize a bilateral trade agreement (BTA) by year-end, aiming to reduce tariffs and boost two-way trade to $500 billion by 2030. Reports suggest India is considering tariff cuts on over 30 U.S. products and increased imports of defense and energy goods to ease tensions

Wait-and-See Approach: India might adopt a cautious stance, waiting to assess the U.S.’s final tariff structure before retaliating, similar to its 2019 response to U.S. tariff actions. This approach avoids immediate escalation while preserving leverage. Overall, India is taking proactive steps to negotiate tariff reductions and secure exemptions while preparing for potential economic impacts from the reciprocal tariffs.

Diversification and Resilience: India is diversifying its export markets beyond the U.S., focusing on Europe, Southeast Asia, and Africa, as recommended by GTRI. Joint ventures with U.S. firms or setting up assembly units in the U.S. are also being explored to bypass tariffs. SBI Research highlights India’s supply chain shifts and growing manufacturing exports as buffers against tariff impacts.

Domestic Advocacy: India’s Commerce Minister Goyal has urged Indian exporters and manufacturers to shed protectionist mindsets and compete globally, signaling a potential shift toward lower tariffs to align with international norms and preempt U.S. pressure. This aligns with ongoing free trade talks with the UK, EU, and New Zealand.

Retaliation as a Last Resort: While India has not announced any retaliatory tariffs yet, historical precedent (e.g., counter-tariffs on U.S. goods in 2019) suggests it could respond in kind if negotiations fail. India may follow Canada and Mexico’s retaliatory actions, though no official policy has confirmed this.

Current Status and Outlook

As of March 25, 2025, the U.S. is finalizing its tariff calculations, due by April 1, with implementation starting April 2/3. Trump’s claim of India’s tariff concessions remains unverified, and Indian officials have emphasized ongoing talks rather than immediate concessions. The reciprocal tariffs could reshape U.S.-India trade relations, potentially forcing India to lower barriers or face higher costs in its largest export market. However, India’s proactive diplomacy and economic diversification may mitigate the worst effects, positioning it to adapt to this new trade landscape. The next few days will be critical as details emerge on the exact tariff rates and affected products.

Despite these challenges, some experts believe that the impact of the U.S. reciprocal tariffs on India may be limited due to differences in the export profiles of the two countries. The Indian government remains committed to safeguarding national interests while striving to maintain favorable trade relations with the U.S. Ongoing negotiations and strategic policy adjustments aim to mitigate the potential adverse effects of the reciprocal tariffs and promote sustainable economic growth.

Conclusions:

The market is still expecting good cooperation between Trump’s MAGA (Make America Great Again) and Modi’s MIGA (Make India Great Again). But now relation between Modi and Trump is not as good as we have seen during Trump 1.0.

Although it’s not clear that Tariff King India will reduce tariffs drastically on all countries including China in the coming days, if it happens, it would be good for the Indian consumers and economy as domestic producers will also have to improve their efficiencies and decrease cost.

The Indian Federal and state governments also have to formulate proper policy reforms in place, so that domestic producers can compete with foreign producers. This may help in restoring price stability and bring down the elevated cost of living in India. Lower price stability and improved productivity are the ultimate for any economy, including India.

Bottom line:

Trump may be creating too many uncertainties and flip-flops on his tariffs agenda to Make America Great Again. Wall Street and also Main Street including the Fed are quite confused about Trump’s various types of tariffs Primary, Secondary, Targeted, Sectoral, and Reciprocal. The market does not like uncertainty. Trump tariff tantrum may not only cause US stagflation but may also create a synchronized global economic slowdown and even an all-out recession just 5-6 years after the previous cycle of the COVID recession.

Market Wrap:

On Wednesday, March 26, 2025, India’s Nifty snapped a 7-day rally led by technical short covering and value buying amid hopes & hypes of a less hawkish Trump trade war policy. Indian market may be also concerned that if India reduces tariffs across the board, it may affect domestic producers as they may be ill-prepared to face cheaper, compatible yet quality imported goods. Indian corporates are already voicing their concern about domestic industry and subsequent job cuts for Trump’s reciprocal tariffs policies.

Technical trading levels: Nifty/India 50 Future/CFD

Whatever may be the fundamental narrative, technically Nifty Future/ India 50 CFD (23500) has to sustain over 23900 for a further rally to 24050/24200*-24400/24600 and a further 24700/25050-25200/25450* and 25650/26000-26200/26500 and 26650*/26800-27000/27200* in the coming days; otherwise sustaining below 23850, it may again fall to 23300/23100-22950/22750 and 2400/22300-22000/21800* and further  21500/21200-20900/20450 and even 19800/19600-17650/16700 in the coming days.