US-Tariff Tensions Weigh on Indian Equity Markets

Indian equity markets declined for the second straight session due to growing tensions between Washington and New Delhi over US tariffs on Indian imports. The NSE Nifty finished at 24,500.90, down 0.9%, and the BSE Sensex ended at 80,080.57, 0.9% lower. Foreign portfolio investors sold shares worth a net ₹6,516.5 crore on Thursday, and domestic counterparts bought shares worth ₹7,060.4 crore. The recent underperformance in banking stocks is expected to continue, and FPIs' short positions in the Nifty have reduced but remain elevated due to nervousness around tariffs.

Indian equity markets continued their downward trajectory for the second consecutive session on July 2, 2025, as tensions between the United States and India over US tariffs on Indian imports persisted. The NSE Nifty closed at 24,500.90, marking a 0.9% decline from the previous session, while the BSE Sensex ended the day at 80,080.57, down 0.9% as well. Foreign portfolio investors (FPIs) sold shares worth a net ₹6,516.5 crore, while domestic counterparts bought shares worth ₹7,060.4 crore.

The market's performance was significantly impacted by the recent 25% tariff imposed by the US on selected Indian imports. This tariff, coupled with ongoing trade tensions, has led to a substantial outflow of foreign capital. The banking sector, in particular, has been a notable laggard, with major banks such as HDFC Bank and ICICI Bank experiencing significant losses [1].

The NSE Nifty's inability to close above the 25,000/25,033 region on Wednesday suggests that buyers are hesitant to chase prices higher, leaving room for potential dips. However, a direct fall below 24,740 would be required to initiate downside plays [2]. The market's resilience, despite tepid earnings growth, has been attributed to sustained liquidity flows, which have prevented a significant correction [2].

Investors are now in a 'wait-and-watch' mode, focusing on the August 27 tariff deadline and the expected goods and services tax rationalization later in the month. The continued resilience of the market, despite sluggish earnings growth, has made India the most expensive market in the world, according to Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments [2].

The planned visit by U.S. trade negotiators to New Delhi, scheduled from August 25-29, has been called off, further dampening hopes for a resolution or postponement of the tariffs. The additional 25% tariff on Indian goods, already in effect, has been compounded by the new 50% levy, making the overall tariff rate one of the highest globally [1].

The US Department of Homeland Security issued a draft notice on Monday detailing the procedures for implementing the new levies, which are set to take effect on Wednesday. The steep 50% tariffs would put Indian goods at a significant disadvantage against regional competitors such as Vietnam and Bangladesh [1].

Market sentiment remains weak, and investors are cautious about the potential impact of these tariffs on the economy and corporate profits. The recent underperformance in banking stocks is expected to continue, and FPIs' short positions in the Nifty have reduced but remain elevated due to nervousness around tariffs [2].

References:
[1] https://www.ainvest.com/news/indian-stock-market-drops-tariffs-banking-sector-weigh-sensex-nifty-2508/
[2] https://m.economictimes.com/markets/stocks/news/sensex-tumbles-over-500-pts-nifty-below-24800-after-u-s-moves-to-levy-steep-tariffs/articleshow/123515750.cms