Fresh US tariffs to hit India on August 27: Where is stock market headed?

The August 27 deadline for the Trump administration’s additional 25 per cent tariff on India, due to the country’s purchase of Russian oil, is unlikely to be deferred, said analysts who noted that Indian markets have underperformed global peers ever since Donald Trump took oath as the US President in January. While the impact of the fresh tariffs, which would take the total tariffs on India to 50 per cent, may be sentimental, it may trigger further foreign outflows, analysts warned.

India stocks underperform peers in Trump era

NSE in its monthly Market Pulse report noted that equities have delivered highly divergent returns when measured from January 20 — the start of the current US Presidential term — reflecting a mix of trade-related optimism in some markets and policy-driven caution in others. It noted that the MSCI Emerging Markets index gained 15.2 per cent, largely powered by gains in Korea’s KOSPI (27 per cent), Hong Kong’s Hang Seng (25 per cent) and Shanghai Composite Index (12 per cent). Developed markets showed more moderate gains, with MSCI World up 8 per cent, supported by steady returns in Europe and the US, although the Dow Jones lagged (up 1.6 per cent) due to trade-related industrial weakness.

“Indian equities underperformed in this context, with the Nifty 50 rising just 5.3 per cent and the Nifty 500 up 3.9 per cent, as lingering uncertainty from tariff measures weighed on risk appetite and delayed the recovery in the private investment cycle — despite resilient macroeconomic fundamentals. In dollar terms, the Nifty50 has delivered a 4.1 per cent return during the same period under review,” NSE’s monthly report suggested.

Likely impact of additional Trump tariffs on Indian stocks

Emkay Global said the likelihood of a negotiated settlement is fading and the final effective tariff of 50 per cent cannot be ruled out. Some of negative impact may be offset by the thaw in relations with China, it said.

The domestic brokerage also believes a decisive GST easing would offset the global stresses. The brokerage stayed positive on Indian equities from a 2-3 quarter perspective and sees GST rationalization as a key catalyst, rendering the tariff outcome largely moot.

“The earnings cycle is bottoming out and strong fiscal and monetary stimuli should catalyze a consumption-led macro recovery in 2HFY26. Elevated multiples are not a major worry unless earnings surprise us on the downside from here – which we see as unlikely. Domestic flows remain robust and there are no signs of weakening – this offsets the FPI and promoter selling to a large degree,” Emkay Global said.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments said as the Russia-Ukraine war persisted, the 25 per cent penal tariff on India for buying oil from Russia, is likely to come into effect from August 27th onwards.

“Even though 50 per cent tariff is unlikely to significantly impact India’s growth, there will be adverse impact on India’s exports and loss of jobs in labour-intensive sectors like textiles, gems and jewellery and leather. The sentimental impact of this development will be negative from the market perspective. FII selling, too, can impact the market,” he said.

The analyst feels domestic-consumption segments like financials, telecom, aviation, hotels , cement and segments of capital goods are better placed to withstand the adverse headwinds.

Emkay Global said there may be some choppiness in the short term until earnings visibility emerges. It sees any significant correction as an entry opportunity. This brokerage is overweight on ‘discretionary’ and underweight on financials and technology.

US trade war & India 

The US has long been a cornerstone of India’s trade network, but the relationship has entered a more challenging phase with the recent escalation in tariffs. Effective from August 27, the US President would impose an additional bilateral tariff of 25 per cent on India, citing India’s continued imports of crude oil from Russia. This raises the cumulative bilateral tariff rate on India to 50 per cent — the highest globally alongside Brazil — and well above the range applied to other major Asian economies, such as Japan and South Korea (15 per cent) or China (30 per cent). The 50 per cent tariff rate is over and above the Most Favoured Nation (MFN) tariff which the US imposed on Indian imports at a product-level.

Why India-US trade matters

India’s trade ties with the US have deepened steadily over the past decade, with total merchandise trade (exports and imports) reaching $132 billion in FY25 — more than double the level in FY15. On average, the US accounted for nearly 18 per cent of India’s total exports between FY22 and FY25, up from 15.7 per cent in FY17–FY19, NSE’s monthly report suggested.  As a proportion of GDP, however, exports to the US remain modest at 2.2 per cent in FY25, a level that has held within a narrow range of 1.1–2.5 per cent for the past three decades.

The composition of trade is also skewed towards non-petroleum products, which form about 94 per cent of India’s exports to the US, although petroleum shipments have grown from negligible levels at the start of the century to a modest average share 6.5 per cent during the last three years, NSE’s Market Pulse suggested.

India’s total merchandise exports in the recent quarters have been weak and posted a mild growth of 1.7 per cent YoY and a sequential contraction of 2.8 per cent QoQ in Q1FY26. However, exports to the US remained robust, averaging around $26 billion in the March-June 2025 quarter against $20.8 billion in the corresponding period last year), with a significant 35 per cent QoQ growth recorded in the quarter ending 2025.

This strength reflects substantial front-loading in March, though sustaining this momentum appears uncertain amid the 50% tariff rate and the evolving trajectory of bilateral trade negotiations.