Following the imposition of tariffs by the United States on July 31, 2025, the Indian stock market experienced selling pressure, leading to lower closes in Thursday and Friday sessions. The Nifty 50 index, BSE Sensex, and Bank Nifty index all saw declines. Selling was broad-based, affecting small-cap and mid-cap indices as well. However, the Nifty 50 index has shown resilience by sustaining above the crucial 24,500 support level, prompting speculation about the Indian stock market's ability to withstand the tariff impact and potentially reverse the trend. Here are five reasons explaining how the Indian stock market might sustain against this sell-off storm:
Limited Impact on Overall GDP: While the U.S. is India's largest export destination, contributing about 2.2% to India's GDP in 2024, the 25% tariff's effect is projected to be limited. India's nominal GDP has surpassed USD 4 trillion, making it the fifth-largest economy globally. Exports to the U.S. account for only around 2% of India's GDP, meaning that even if tariffs impact a subset of these exports, the overall macroeconomic fallout remains limited because 80% of India's GDP is driven by domestic demand.
Diversification of Export Markets: Indian exporters are actively expanding into markets in the Middle East, Africa, Southeast Asia, and Latin America to reduce reliance on Western economies. Diversifying markets reduces dependency and the risks of future coercion.
Exempted Sectors and Products: The 25% tariff will not apply to specific categories, including pharmaceuticals, active pharmaceutical ingredients (APIs), energy products, and a wide array of electronics and semiconductors. These exemptions mitigate the impact on key sectors of the Indian economy. India is the largest exporter of non-patented drugs to the USA, accounting for 50% of America's generic drug supply. Also, India emerged as the largest iPhone exporter to the US in Q2 2025, contributing 44% of iPhone exports. The tariffs threaten to disrupt Apple's plans to expand manufacturing capacity in India to 60 million units.
Ongoing Trade Negotiations: The sixth round of U.S.-India trade talks is scheduled for August 2025. Historical precedents suggest a realistic possibility of a rollback or sector-specific reprieve, similar to previous interactions with the U.S. administration. Despite the tariffs, both countries remain committed to continuing discussions for a possible India-US trade deal.
India's Firm Stance and Policy Support: India's refusal to compromise on agriculture and dairy markets reflects a confident trade stance. The Indian government is unlikely to offer zero-tariff concessions due to security dependencies. The government may consider reimposing a digital tax on US companies and may take a tough stance in negotiations, particularly regarding access to the Indian dairy and agriculture segment. Also, India has made it clear that agriculture, dairy, and genetically modified (GM) crops are off the table for any trade deal. If a trade deal fails to materialize, India is open to considering protective measures to safeguard its economic interests.
In conclusion, while the imposition of tariffs by the U.S. presents challenges, the Indian stock market's resilience is supported by a combination of factors, including limited overall GDP impact, diversification of export markets, exempted sectors, ongoing trade negotiations, and India's firm policy stance. These elements could help the Indian stock market sustain against the sell-off storm.
