Why stock market cut losses today; Trump tariff impact on India & more

A 3,000-point drop on Sensex in the pre-open trade might have raised investor anxiety earlier today, but the domestic stock market did not fall much post the initial knee-jerk reaction to the 27 per cent US tariffs. Pharmaceutical products that account for just over 14 per cent of India's total exports to the US were exempted in the US tariff list. Also, the US administration did not levy additional tariffs on steel and aluminum articles and autos and auto parts, which are subject to Section 232 tariffs. 

Among other export-oriented sectors, Indian IT is likely to be relatively insulated from the impact of tariffs, although concerns over a slowdown in the US economy may weigh on the sector, Nirmal Bang Institutional Equities said.

Sensex, which hit a low of 75,807.55 earlier today, recovered and was last traded at 76,341.60, down 275.84 points or 0.36 per cent. Nifty tested 23,150 today, but rebounded later. It was quoting 78.05 points, or 0.33 per cent, lower at 23,254.30.

"While an ‘uncertainty tax’ on account of volatile policy cannot be avoided , we expect the US economy to hold up supported by a resilient US consumer, extension of tax cuts and accommodative fiscal (despite some consolidation) and monetary policy. Moreover, tariffs may have only a limited and transitory impact on inflation. We continue to see room for a rate cut of 50bps or more in the US, which could be accentuated by any softening of economic conditions," Nirmal Bang said. 

Softening rates and investment in digital and AI should benefit Indian IT services companies, it said.

Trideep Bhattacharya, President & CIO for Equities at  Edelweiss MF said the its a relief that there is no incremental adverse impact on large exporting sectors like IT services, pharma and autos. 

He said it is relatively better for India in terms of improving relative competitive advantage versus Asian Peers, but the rise in recession related fears in US is a concern, he said.

Pharma stocks in fact surged up to 7 per cent today, as the US exempted the sector in the tariff list.

"The move is positive especially for pharma companies with exposure to US markets. Amongst our coverage companies- Sun Pharma, Torrent Pharma and Piramal Pharma could benefit as they derive 32%, 10% and 41% of sales from the US. While amongst other companies like Zydus Life Sciences (US sales - 46%) Gland (US sales - 50%), Aurobindo (US sales - 48%) and Dr Reddys ( US sales - 47%) amongst others could also benefit from the announcement," said Manish Jain, Chief Strategy Officer & Director at Mirae Asset Capital Markets. 

Vineet Agrawal, Co – Founder at Jiraaf said the silver lining for India is that it remains on the lower end when compared with China, Vietnam, Bangladesh and Thailand. 

"As regards to tariff on India, it is good to note that currently pharma and semiconductor remains exempt. However, the net impact would be c. 0.4-0.45 per cent of GDP. It would be critical to understand impact on key commodities like oil and gold in an uncertain economic environment which could fuel domestic inflation. From a markets standpoint, the higher tariff on other countries could also possibly lead to some positive flows in India if the domestic indicators turn stronger," Agarwal said.

Arsh Mogre of PL Capital Institutional Equities said: “The US imposition of a 26 per cent uniform tariff on Indian exports marks a significant yet strategic recalibration of trade dynamics towards bilateralism and the end of multilateralism—less an act of protectionism, more a high-stakes gambit in trade negotiations."

JM Financial said while the tariff announcement eliminates the uncertainty around the tariff rates but prima facie, the elevated tariffs would exert pressure on global trade practices as trade partners start re-evaluating their supply chains.

"We believe that trade partners would continue to negotiate for a better deal in the upcoming months through diplomatic channels. Although the Fed had significantly lowered its growth projection while expecting inflation to remain elevated, the central bank would now be in a better position to take a call on the policy rates. We expect RBI to deliver another 25bps rate cut in April 2025, as elevated tariffs could prove to be an additional drag on the domestic economy," it said.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments said the exemption given to Indian pharmaceuticals is a positive and, therefore, this segment is likely to witness buying. Even in a weak market, domestic consumption driven sectors will be regarded as safe havens by investors, he said.