Out of Domestic Pain, Onto Trump’s 'Uncertain' Tariff Lane: Where is D-Street Headed?

When US President Donald Trump initially dropped the tariff bomb on its trading partners, many D-street players were quick to list factors that could work in India’s favour. From a competitive advantage over its peer on account of relatively lower tariff rates to steady domestic macros (think inflation below the RBI’s 4% target and nominal GDP at 9.9%), investors saw how India could gain.

But that sentiment took a hit on Monday as domestic benchmarks—Sensex and Nifty—crashed by as much as 5%, mirroring the trends of global markets, especially their Asia-Pacific peers that took a sharper blow. The Hang Seng index plummeted by over 10% while Japan’s Nikkei declined by around 8%, prompting traders to give the day a ‘Black Monday’ tag.

India's volatility index saw its biggest single-day gain and surged over 60% on April 7. As uncertainty took over, investors had to come to terms with the fact that the country was unlikely to gain substantially from relatively lower reciprocal tariffs, say analysts.

“We find the Street’s view about India benefiting from relatively lower tariffs than, say, China or Vietnam, quite myopic. Supply chains are unlikely to shift immediately, especially if the US were to keep the option of trade deals open. Some shift in low value-added segments is possible, but a radical shift in supply chains towards India is not a given,” stock broking company Kotak Securities stated in a report.

Meanwhile, D-street's divided views on India benefiting from the tariff play have added uncertainty to the outlook. And while sectoral impact segregation and bilateral trade agreements are likely to clear the air in the short term, there is another pain point looming.

Mixed Signals Spook Investors

After the Liberation Day tariff announcement, global markets slipped into a sea of red as panic took over. But this was along expected lines. However, despite the fall, domestic benchmark indices fared relatively better. The resilience of the pharma sector, a major exporter to the US, provided some comfort, as the sector was excluded from the tariff list. This relief was short-lived as just a day later, Trump dropped another bomb, warning that, “Pharma tariffs are going to come in at levels haven’t really seen before.”

Even on April 7, the S&P 500 briefly turned positive after falling 3%, following reports of a potential 90-day delay in tariff imposition. However, the gains were short-lived as the White House denied the reports, sending US markets back into the red.

Meanwhile, other nations, especially China, which plans to impose a 34% retaliatory tariff on US imports, are pushing back. In response, President Trump has threatened to hike tariffs to 50% if China doesn’t pull back. With fears of a recession looming over global trade, coupled with the threat of oversupply from China, concerns over a trade war are here to stay.

“Currently we are living in an uncertain world, hence traditional technical and fundamental parameters may not be the right model to look at current times, unless the word ‘uncertainty’ is removed from the investor's mind...we don’t know what comes next and in which area from the US administration,” said Manish Jain, chief strategy officer and director at Mirae Asset Capital Markets.

 Macro Edge No Longer a Plus?

After a dull second quarter, the Indian economy bounced back in Q3 with a 6.2% growth rate. Alongside, capital expenditure by the central government gained momentum in the December and January period. Soon after, the central bank kicked off its rate cut cycle. On an overall basis, the macro picture is starting to see green shoots of recovery. Another point in favour of India, despite the imposition of reciprocal tariffs, is that the country is not as dependent on exports compared to many of its peers. But the unpredictability in the background makes it too early to pronounce if the country’s cyclical slowdown is over.

“The global circumstances are very uncertain and fast-changing. So, while there are domestic green shoots, it is not yet a clear call of calling the bottom of growth for India,” Trust Mutual Funds said in a market note.

Analysts agree that India’s relative resilience might help its equities stand out—at least to some extent. “India isn’t completely insulated. A global risk-off mood can still trigger broader corrections across equity markets. Additionally, supply shocks from China could pose challenges for domestic players if the government doesn’t step in with adequate safeguard measures,” said Rupak De, senior technical analyst at financial services firm LKP Securities.

Meanwhile, Q4 is going to be crucial as all hopes are now pinned on domestic recovery and India Inc’s quarterly earnings will be critical in steering the market’s next move.

If earnings begin to contract, the correction in the Nifty could deepen beyond 10%, potentially pulling it down to 20,000 or lower. In challenging environments, earnings have been cut by as much as 30%. So far, there has already been a 7% downgrade for calendar year 2025 and 2% for calendar year 2026, since September 2024. That makes the upcoming earnings season crucial to watch, said Mirae’s Manish Jain.