Biggest Economic Shock of 2025? Indian Stocks Face April 2 Test
New Delhi: As the April 2 deadline nears, all eyes are on Indian market indices as to how they will react to Donald Trump’s reciprocal tariff shock. The move is set to impact global economy as the effects are almost inevitable on the Indian market as well. Though India and US are still looking to negotiate the trade dealings between the two country, the larger picture is yet not clear as to how Trump would advance with his counter tariff narrative when it comes to India.
How Will India’s Economy and Key Sectors Be Affected?
Trump’s proposed reciprocal tariffs are part of a larger strategy to rebalance trade relationships with countries that maintain significant trade surpluses with the US. While the policy primarily targets nations like Japan, the EU, Canada, and Mexico, India has also been included in the list of affected countries. However, analysts believe India may not face as severe an impact as some of the other major economies.
These tariffs could create disruptions in global supply chains, particularly in sectors like automobiles and pharmaceuticals, which have strong trade linkages with the US. India’s auto parts industry, which exports around $1.5 billion worth of products annually, could face margin pressures, affecting key players like Bharat Forge and Motherson Sumi. The auto industry is already struggling due to a 25% tariff on imported cars and parts, and additional levies could further strain manufacturers.
Similarly, India’s pharmaceutical exports to the US, valued at approximately $8 billion, could be hit if trade tensions escalate. The US is a major market for Indian drug manufacturers, and increased tariffs could raise costs, affecting companies like Sun Pharma, Dr. Reddy’s, and Cipla.
The fine print of Trump’s tariff policy is still awaited, and its final implementation will determine how deeply Indian industries will be affected. However, the recent decline in auto and pharma stocks suggests that markets are already pricing in potential short-term disruptions.
Limited Macro Impact on India
Economists suggest that while US tariffs will affect India, the impact will be limited. SBI Research estimates a 3-3.5% decline in Indian exports, while S&P notes that exports to the US contribute only 2.3% of India’s GDP, reducing direct fallout.
Unlike heavily export-driven economies, India is largely domestic-driven, mitigating long-term risks. Meanwhile, global trade tensions are expected to slow GDP growth and increase inflation in affected countries, but India’s moderate trade exposure to the US offers resilience.
Have Indian Markets Priced in Trump’s Reciprocal Tariffs?
Analysts believe Indian markets have shown only mild volatility, indicating that the risk of reciprocal tariffs is not yet fully priced in. The uncertainty surrounding which sectors or products will be directly affected has led to a wait-and-watch approach.
“Indian markets have primarily focused on domestic factors like RBI policy and corporate earnings. If reciprocal tariffs are imposed, short-term volatility could hit export-driven sectors like IT and pharma, while auto and metal stocks may also feel pressure,” ET quoted Chethan Shenoy, Director & Head – Product & Research, Anand Rathi Wealth.
Foreign Investment & Domestic Strength as a Cushion
One encouraging trend is the renewed buying by Foreign Institutional Investors (FIIs), boosting market confidence.
Despite trade uncertainties, India’s markets may find support from strong domestic demand, fiscal infrastructure spending, easing inflation, and potential RBI rate cuts in H2 2025. Additionally, India’s strong forex reserves could help manage currency volatility, reducing the broader economic impact of tariffs.
Furthermore, India’s rising role as a China+1 manufacturing destination could keep it in a favourable position, even if short-term export disruptions occur.