Sensex Crashes as Trump Slaps 25% Tariff on Indian Exports, Trade War Jitters Grip Markets

Markets Nosedive as Trump Imposes 25% Tariff on Indian Exports; Sensex Sinks 335 Points, Trade War Fears Escalate

India’s key equity indices plunged during early trade on Thursday, August 7, after US President Donald Trump introduced a new 25% tariff on Indian exports, aggravating the trade tensions between the two nations.

It follows the announcement on Tuesday that Washington had doubled previous tariffs on Indian exports to 50%, making India one of America’s highest-taxed trade partners. The moves have raised alarm about a protracted standoff and potential fallout for Indian export-oriented industries.

Indices React Sharply to Tariff Shock

The BSE Sensex opened 335.71 points down at 80,208.28, while the NSE Nifty dipped by 114.15 points to 24,460.05. Gift Nifty futures, reflecting market sentiment before official business, traded close to the flat line at 24,586 points at 7:05 am, marking a weak opening in tandem with global signals.

Investor mood has suffered with increasing doubts about the direction of Indo-US trade relations, which are feared to jeopardize India’s economic upturn.

Economists Warn of GDP Impact

“If these tariffs continue for a year, the hit to India’s GDP growth would be about 30 to 40 basis points,” HDFC Securities CEO Dhiraj Relli told Reuters.

Even as tensions are mounting, the Reserve Bank of India has continued to hold its FY25 GDP growth estimate at 6.5%, thanks to domestic demand resilience and a positive monsoon expectation. Yet, analysts warn that sustained policy uncertainty can sabotage such optimism.

Currency Stable Despite Trade Jitters

One-month USD-INR non-deliverable forwards (NDFs) are a notable benchmark for currency market volatility. The rupee is expected to open on a stable note, or, in other words, there is a trusting belief in the present state of India's macroeconomic fundamentals.

However, analysts opine that deteriorating diplomatic relations with Washington have the potential to spook foreign institutional investors and result in capital outflows in the medium term.

Global Markets Diverge on US Policy Moves

As Indian markets slumped, Asian equities lifted on Thursday following Trump’s ultimatum to impose 100% tariffs on chip exporters with significant exceptions. US-investing companies such as Apple Inc. were exempted, spreading optimism in the technology industry.

The MSCI Asia Pacific Index rose by 0.8%, with Samsung Electronics up 1.9% and Taiwan Semiconductor rising by 4.4%. As S&P 500 and Nasdaq 100 contracts increased by 0.3%, US futures also gained.

What Lies Ahead

Market observers are now waiting for policy signals from New Delhi and Washington. “The tariff doubling, along with deteriorating bilateral relations, may shake the market out of complacency lately,” cautioned Nilesh Shah, CEO, Kotak Mahindra AMC.

The attention now turns to the Reserve Bank of India’s monetary policy and any diplomatic move to stem the damage.