USDINR surged, Nifty slips amid Trump’s 25% tariff on India
·
If Trump does not extend the tariff pause on India
for another 90 days and Trump's tantrum intensifies, then USDINR may hit 92-95
in the coming days
·
The Indian economy may face a stagflation-like
scenario under an all-out Trump trade war between the US and India
·
The US is India’s biggest export destination and
inward remittance source, accounting for almost 15% of India’s FX/USD reserve
·
Trump’s bullying tactics and insulting comments are
making it difficult for Modi to compromise and make a deal, even by
September’25 to domestic political compulsion
On July 30, 2025, as highly expected, U.S.
President Trump announced a 25% tariff on Indian goods, effective August 1,
2025, citing India's high tariffs on U.S. goods and its purchases of Russian
oil and military equipment. He also threatened an additional unspecified
"penalty" for India's energy and defense ties with Russia, which he
linked to enabling Russia's war in Ukraine. The tariffs aim to address a U.S.
trade deficit with India ($55.7 billion in 2024) and pressure India to reduce
trade barriers. India's Commerce Ministry stated it is studying the implications
and remains committed to a fair bilateral trade agreement. Earlier in July,
Trump had threatened 100% secondary tariffs on countries buying Russian oil,
though skepticism exists about enforcement due to potential global oil price
spikes.
Indian goods will now face 25% tariffs + 7.5%
sales tax=32.5% tax in the US, while US goods continue to face ~17.5% weighted
average tariffs +15% IGST=32.5% total tax in India. Indian service will face no
tariffs and no sales tax in the US in general, but US service faces ~18% GST in
India. Thus, Trump wants 0% tariff from India. In the longer term, India has to
reduce its high tariffs & GST and modernize agri/MSME with appropriate policy
to be competitive globally, rather than a forever protectionist policy for Vote
& Note bank politics. Trump desperately wants to sell U.S. agri/farming
products in India to keep his American vote bank intact; due to Trump's policy,
the U.S. agri sector is now in a bad state, and exports are hurting in China,
Canada, Mexico etc.
On July
30, Trump posted a series of Truths on India and others:
·
WE HAVE A
MASSIVE TRADE DEFICIT WITH INDIA!!!
·
Remember, while
India is our friend, we have, over the years, done relatively little business
with them because their Tariffs are far too high, among the highest in the
World, and they have the most strenuous and obnoxious non-monetary Trade
Barriers of any Country. Also, they have always bought a vast majority of their
military equipment from Russia, and are Russia’s largest buyer of ENERGY, along
with China, at a time when everyone wants Russia to STOP THE KILLING IN UKRAINE
— ALL THINGS NOT GOOD! INDIA WILL THEREFORE BE PAYING A TARIFF OF 25%, PLUS A
PENALTY FOR THE ABOVE, STARTING ON AUGUST FIRST. THANK YOU FOR YOUR ATTENTION
TO THIS MATTER. MAGA!
·
We are very
busy in the White House today working on Trade Deals. I have spoken to the
Leaders of many Countries, all of whom want to make the United States
“extremely happy.” I will be meeting with the South Korean Trade Delegation
this afternoon. South Korea is right now at a 25% Tariff, but they have an
offer to buy down those Tariffs. I will be interested in hearing what that
offer is.
·
We have just
concluded a Deal with the Country of Pakistan, whereby Pakistan and the United
States will work together on developing their massive Oil Reserves. We are in
the process of choosing the Oil Company that will lead this Partnership. Who
knows, maybe they’ll be selling Oil to India someday!
·
Likewise, other
Countries are making offers for a Tariff reduction. All of this will help
reduce our Trade Deficit in a very major way. A full report will be released at
the appropriate time. Thank you for your attention to this matter. MAKE AMERICA
GREAT AGAIN!
·
I don’t care
what India does with Russia. They can take their dead economies down together,
for all I care. We have done very little business with India; their Tariffs are
too high, among the highest in the World. Likewise, Russia and the USA do
almost no business together. Let’s keep it that way, and tell Medvedev, the failed
former President of Russia, who thinks he’s still President, to watch his
words. He’s entering very dangerous territory!
·
I am pleased to
announce that the United States of America has agreed to a Complete Trade Deal
with the Republic of Korea. The Deal is that South Korea will give the United
States 350 Billion Dollars for Investments owned and controlled by the United
States, and selected by me, as President. Additionally, South Korea will
purchase 100 Billion Dollars of LNG, or other Energy products and, further,
South Korea has agreed to invest a large sum of money for its Investment
purposes. This sum will be announced within the next two weeks when the
President of South Korea, Lee Jae Myung, comes to the White House for a
Bilateral Meeting. I would also like to congratulate the new President on his
Electoral Success. It is also agreed that South Korea will be completely OPEN
TO TRADE with the United States, and that they will accept American products
including Cars and Trucks, Agriculture, etc. We have agreed to a Tariff for
South Korea of 15%. America will not be charged a Tariff. I would like to thank
the Trade Representatives who came forward today. It was an Honor to meet them
and talk about the Great Success of their Country!
·
Wow! Canada has
just announced that it is backing statehood for Palestine. That will make it
very hard for us to make a Trade Deal with them. Oh, Canada!!!
Reaction
of Indian officials & ministers about Trump’s bullying tactics:
Overall, Trump’s bellicose comments about India
and romance with Pakistan have caused a political uproar in the Indian media
and political circle; it would be very difficult for India’s BJP-/NDA/Modi
government to continue trade talks with the Trump administration and offer any
major concessions. With the adverse domestic political compulsion and
forthcoming elections in major states like WB and Bihar, PM Modi may try his
best to look like a ‘strong’ leader against Trump’s bullying tactics, not
‘weak’ by ‘compromising India’s national interest’.
Indian officials have responded cautiously but
firmly to U.S. President Trump's announcement on July 30, 2025, of a 25% tariff
on Indian goods and an unspecified penalty for India's purchases of Russian oil
and military equipment. The Ministry of Commerce and Industry issued a
statement noting that the government is "studying the implications"
of Trump's decision and emphasized its commitment to "take all steps
necessary to secure our national interest." This reflects India's intent
to prioritize its economic and strategic priorities while navigating the trade
tensions.
India's Commerce Ministry reiterated its
dedication to concluding a "fair, balanced, and mutually beneficial"
bilateral trade agreement with the U.S., despite the failure to finalize a
"mini-deal" before the August 1 deadline. Indian Commerce Minister
Piyush Goyal had previously expressed optimism about reaching a trade deal,
highlighting "fantastic progress" in negotiations, but stressed that
India would protect sensitive sectors like agriculture and dairy, which employ
a significant portion of its population. On July 31, 2025, in an official
statement at India’s Parliament (Lower House), Goyal reaffirmed the Indian
government's commitment to safeguarding the interests of farmers, workers, and
entrepreneurs- emphasizing that national interest is paramount. He responded to
Trump's critical remarks about India's economy and its relationship with
Russia, asserting that India would take all necessary steps to protect its
stakeholders.
On the issue of Russian oil purchases, India's
Ministry of External Affairs (MEA) cautioned against "double
standards," pointing out that European Union members continue to procure
Russian energy despite Western sanctions. MEA spokesperson Randhir Jaiswal
emphasized that "securing the energy needs of our people is understandably
an overriding priority," defending India's reliance on Russian oil, which
accounts for 35-40% of its crude imports. External Affairs Minister S. Jaishankar
voiced concerns over a proposed U.S. bill for 500% tariffs on countries trading
with Russia, stating that India’s energy security interests have been
communicated to U.S. lawmakers, including Senator Lindsey Graham.
India’s Oil Minister Hardeep Singh Puri dismissed
fears of disruptions, asserting that India has diversified its oil suppliers
from 27 to 40 countries and could adapt if Russian supplies face sanctions. He
described Trump's tariff threats as a strategic negotiation move with minimal
impact on India's oil trade. Indian refiners are adopting a wait-and-watch
approach but are also exploring alternative crude sources from the Middle East
and West Africa to mitigate potential risks. Overall, Indian officials are
balancing diplomatic engagement with a firm stance on national interests,
emphasizing energy security, trade fairness, and resistance to external
pressure on their Russia ties.
Potential
effect on Indian economy: Trump’s 25% tariffs on Indian goods: The imposition of a 25% U.S. tariff on Indian goods,
effective August 1, 2025, along with an unspecified penalty for India’s energy
and defense ties with Russia, is expected to have a multifaceted impact on the
Indian economy including a potential loss of ~$25B merchandise exports to the
US for higher tariffs and possible substitution by other exporters having
comparatively lower tariffs.
Indian
Economy
The Indian economy, while largely domestically
driven, faces challenges from the U.S. tariffs due to the U.S. being India’s
largest export market, accounting for 18% of total merchandise exports
(approximately $86.5–$87 billion in FY25). The tariffs target key export
sectors, which could disrupt trade flows and reduce export competitiveness.
However, India’s total export exposure (goods & services) to the U.S.
market (~$122B) is relatively limited, with exports to the U.S. constituting
about 3% of GDP, suggesting a contained overall economic impact compared to
more export-dependent economies like China, Vietnam or Taiwan.
Analysis suggests that India’s total trade surplus
with the U.S. ($56 billion in FY25) may narrow, potentially widening the
current account deficit by 0.1% of GDP. The Indian government’s non-retaliatory
stance and ongoing trade negotiations signal efforts to mitigate broader economic
fallout through diplomacy and diversification. Strategic measures like
expanding Production Linked Incentive (PLI) schemes and pursuing trade
agreements with the EU and UK could help offset losses by redirecting exports
to other markets.
Currency: USDINR
But overall, if we combine India's trade surplus
of ~$56B and net inward remittances of ~$37B, totaling ~$93B, it’s almost 14%
of India’s FX reserve and a significant part of India’s need for USD to pay its
huge import bill, led by China. The US, EU, UK, Bangladesh, UAE and Singapore
contribute ~$202B, i.e., over 30% to India’s FX reserve ~$650B on average. Thus,
India needs to ensure good diplomatic and trade relations with the US,
irrespective of Trump’s narrative, to ensure the USD inflow; otherwise, USDINR
may soon scale 100 levels, something which may cause substantially higher
inflation and a higher cost of living in the coming days.
The Indian rupee (INR) is likely to face downward
pressure due to reduced export revenues and potential capital outflows
triggered by global risk-off sentiment. Estimates suggest significant depreciation
in the rupee (INR) against the U.S. dollar (USD) to almost 90-95. A weaker
rupee could cushion some export losses by making Indian goods relatively
cheaper in global markets, but may increase the cost of imports, particularly
energy, commodities and machinery, which India heavily relies on. The Reserve
Bank of India (RBI) is unlikely to intervene heavily to prop up the rupee,
unlike in the past, prioritizing forex reserve stability (currently at $651
billion). A stronger U.S. dollar, driven by U.S. tariff policies, could
exacerbate rupee volatility if global trade tensions escalate.
Inflation
The tariffs could contribute to imported
inflationary pressures in India, primarily through higher input costs in
tariff-affected sectors like steel, aluminum, and electronics. For instance, a
10% rise in steel prices could increase construction costs, impacting real
estate and infrastructure. Imported inflation may also rise if the rupee
weakens, increasing the cost of energy and sensitive components. India’s total
CPI (inflation) may again surge towards 5% long-term average from the present
3% average in 2025.
Employment
India’s export-oriented sectors like textiles,
gems and jewelry, and auto components, which are labor-intensive and employ
millions, particularly in MSMEs, may face significant risks; various estimates
suggest a 5–7% job loss in these sectors due to reduced U.S. demand. MSMEs in
export hubs like Maharashtra, Gujarat, Tamil Nadu, and Karnataka are especially
vulnerable, as many operate on thin margins and lack the resources to pivot
quickly to new markets. The textiles and apparel sector, competing with Chinese
proxies like Bangladesh and Vietnam, could see layoffs if high-margin
categories lose competitiveness. Similarly, auto component manufacturers like
Bharat Forge may face reduced orders, threatening jobs.
However, sectors like pharmaceuticals,
semiconductors, and smart mobiles, laptops, and tablets which are currently
exempt from tariffs, may provide some employment stability. Government
interventions, such as interest subsidy programs and export promotion schemes,
could mitigate job losses by supporting MSMEs and encouraging market
diversification. Overall, India’s unemployment rate averaging around 8% for the
last 25-years, may jump over 10% and underemployment t rate from ~25% to ~30%
in the coming days, if Indian merchandise exports to the US continues to be tariffed
at 25%, higher than 15-20% for most of the comparable peers.
GDP Growth:
Overall ~0.5% directly & indirectly (export & production loss, higher
inflation)
Analysts project a modest but notable impact on
India’s GDP growth, with estimates ranging from a 0.2–0.5% reduction in FY26
growth. Goldman Sachs and Nomura estimate a 20–40 basis point (bps) drag,
revising India’s FY26 GDP growth to 6.1–6.3% from earlier projections of
6.5–6.8%. Morgan Stanley suggests a 30–60 bps hit, while Macquarie and CNBC
TV18 warn of up to a 0.8–0.9% contraction if exports to the U.S. drop
significantly ($30–33 billion).
The Asian Development Bank (ADB) lowered its FY26
forecast to 6.5%, citing U.S. tariffs and global trade uncertainty. However,
India’s domestically driven economy, with exports to the U.S. constituting only
~3% of GDP, limits the overall impact. Domestic consumption, supported by a
strong monsoon and rural demand revival, and sectors like services and
agriculture are expected to cushion growth. The RBI’s potential 150 bps rate
cuts in FY26 and government tax relief could further buffer the economy.
Specific
Sectors and Stocks: The US tariffs
disproportionately affect certain sectors, while others are insulated due to
exemptions or domestic focus.
Not
impacted for the time being
Generic Pharmaceuticals:
Largely exempt from the 25% tariff, providing
relief to companies like Dr. Reddy’s, Sun Pharma, Cipla, Zydus Life, Gland
Pharma, Biocon, and Syngene, which derive 30–68% of their revenue from the U.S.
Pharma exports to the U.S. ($8–9 billion annually) are a key strength, and
stocks rose nearly 5% after the tariff announcement due to the exemption.
However, there are potential future tariff risks as Trump may impose at least
25% tariffs initially on branded pharmaceutical imports to offshoring pharma
manufacturing and reduce dependence on Chinese APIs.
Electronics
and Smartphones: This sector
faces significant pressure, with $14 billion in exports to the U.S. at risk.
Contract manufacturers assembling smartphones and solar panels may see pricing
and volume declines due to thin margins. Companies like Waaree Energies, with
over 50% of its order book tied to the U.S., could face revenue losses. The
tariffs may discourage U.S. investments in India’s electronics sector, favoring
competitors like China or Vietnam. Trump wants 100% manufacturing of electronic
items, including smartphones, and not mere transshipments from China via India
or any other country.
Sectors
that may be affected directly & indirectly:
Textiles
and Apparel: Vulnerable to
the 25% tariff, with $9 billion in exports to the U.S. at risk. India’s
competitiveness in low-cost categories may face competition from Vietnam (20%
tariff) and even Bangladesh (35% tariffs) due to Chinese proxies, efficiencies,
labor costs, and scale of operation issues; also, high-margin fashion and
specialty fabrics could lose market share. MSMEs in Tamil Nadu and Gujarat are
particularly exposed, with potential job losses. Stocks like Arvind Ltd. and
KPR Mill may face volatility.
Gems and
Jewelry: This sector, contributing
$8.5–9 billion to U.S. exports, is heavily impacted. The tariffs could reduce
demand, affecting companies like Titan and Rajesh Exports. MSMEs in this
sector, reliant on U.S. markets, face pricing challenges.
Auto and
Components: The 25% tariff
on auto components (already in place since April) affects companies like Tata
Motors (15% U.S. revenue, particularly Jaguar Land Rover) and Bharat Forge.
Sona BLW Precision Forgings, with 40–45% U.S. revenue, is highly exposed. Nifty
Auto fell 0.64% post-announcement, reflecting market concerns. Job losses and
supply chain disruptions are risks. But Tata Motors may be relatively less
impacted as the UK/EU subsidiary will export to the US at lower 10-15% tariffs.
Steel and
Aluminum: Already subject to 25–50%
tariffs since March 2025, these sectors ($3.2 billion in exports) face reduced
competitiveness against U.S. producers. Stocks like Tata Steel and Hindalco
could see further pressure; again, Tata Steel UK and EU/Netherlands may cushion
a large impact.
IT
Services: Not directly impacted by
tariffs, as services are exempt, but a potential U.S. economic slowdown could
reduce discretionary spending, affecting companies like TCS, Infosys, HCL Tech,
and Tech Mahindra.
Specialty
Chemicals: Operating margins could
decline by 150 bps to 14–15% in FY26 due to tariff pressures and Chinese
dumping. Companies like Navin Fluorine, PI Industries, SRF, and UPL, with
25–43% U.S. revenue, may face delayed orders.
Domestic
Sectors (Financials, Consumer Goods):
Less affected due to their domestic focus. Stocks like HDFC Bank, ICICI Bank,
and HUL are seen as defensive bets, with gains reported post-tariff
announcement; but overall economic weakness may also affect banks &
financials and FMCG indirectly in the coming days.
Conclusions:
The Indian economy may face a stagflation-like scenario
The 25% U.S. tariff and potential penalties pose
short-term challenges for India’s economy, with a projected GDP growth
reduction of ~0.5%, rupee depreciation of ~5%, and inflationary pressures (+100
bps) from higher input costs. Employment in labor-intensive sectors like
textiles and auto components is at risk, with MSMEs facing significant
disruption. The potential higher inflation, higher unemployment, and lower
economic growth may bring a stagflation-like scenario for the Indian economy.
However, India’s domestic-driven economy,
pharmaceutical, chips, electronic items exemptions (till August 14), and
competitive tariff rates relative to peers like Bangladesh (35%), China (30%),
and Vietnam (20%) limit the overall impact. Stocks in pharma, electronics and
domestic sectors are likely to remain resilient, while export-heavy sectors
like textiles and auto components face headwinds. Strategic diversification and
government interventions could mitigate long-term risks, with trade
negotiations offering hope for a resolution despite the tough political
climate.
Trump’s bullying tactics and often insulting
comments about India, and resultant adverse media & politically hot
atmosphere may be making future trade negotiations difficult for the Indian
government and officials (Modi admin) in the coming days. Trump may want Modi
to call him and beg for a trade deal in line with Japan or South Korea by
opening up the economy fully with almost zero tariffs along with a fine
(investment in the US) ~$500B to get export rights to the US with 15% tariffs.
Trump’s proposal of 0% tariffs for US goods into India will be equivalent to
15% total tax (IGST), while Indian goods will face ~22.5% total tax with 15%
tariffs and 7.5% sales tax. But Modi may not do so as it will portray him as a
‘weak’ leader, bending before Trump’s bullying tactics.
India may have done a blunder by proactively
approaching the Trump admin from day one (January 2025) for a trade deal,
engaging in at least six public meetings. Trump takes this as a sign of
weakness and intensifies his bullying tactics steadily. India should have
followed the Chinese stance despite having no leverage like China (like rare
earth materials). Trump is now less hawkish on China and more hawkish on India
and the EU than in his 1st term.
The Trump admin may have made a realistic
assessment that, together with China, the US has almost 50% of the global
economy and is dependent on each other for prosperity and development. Unlike
Trump 1.0, the US under Trump 2.0 is now seeing China as a big competitor, not
seeking decoupling, but derisking from strategic dependence. China, on the
other hand, is also steadily expanding itself in the last 10-20 years not only in
trade with other countries to reduce US/EU dependence, but also diversifying
itself from any US dependence including high techs and aerospace.
China is now overtaking the US not only in terms
of real wealth, development, prosperity, but also in hi-techs, AI, chips, quantum
computing, 6G, and advanced military hardware & software. China’s indigenous
GPRS and operating system have reduced it on the US. The US now sees China as
an equal, if not bigger competitor on both economic and military, i.e. as the
true number two superpower in the world not as a mere military superpower like the
old USSR (now Russia).
Bottom
line: India has to reform and compromise itself to make a trade deal with the
US
Thus, Trump 2.0 is now negotiating with a stronger
China with a different approach (3D chess) than India, which has no leverage
(cards) like China. But still, India has to ‘manage’ the Trump trade war 2.0 in
the short term and to reform/reset the whole internal system in the longer term
for a truly developed economy by developing its geopolitical relation with not
only China, but the whole BRICS to compete with US unilateralism and USD
hegemony. India also has to lower its tariffs and GST and also borrowing costs
for a lower cost of living, higher private capex with a globally competitive
economy. India also has to reform & modernize its century-old agri/farm
sector for higher yields and lower cost of food.
Market
impact:
On Thursday, July 31, Nifty recovered from the Trumptariff panic low after the initial gap down amid short covering from technical
support zone (24600-500), led by Trump’s Truth about Russia and India, sounding
less hawkish on secondary sanctions. Trump may not impose a steep penalty on
India and China for buying Russian oil, as it would infuriate China further.
But Trump may still impose steep tariffs on India alone as a negotiation tactic
for a trade deal with India without causing major geopolitical issues with the
world’s largest democracy and a potentially big market for US agri/farming
items. Although a higher USDINR may be good for export-heavy Nifty earnings,
any drastic secondary sanction on RIL and higher tariffs on other key US
exporters would be overall negative.
Technical
outlook: Nifty Future, Bank Nifty Future and USDINR
Looking
ahead, whatever may be the narrative, technically Nifty
Future (CMP: 24700) now has to sustain over 24600-24500 for a recovery to
25000/25300*25800/26000* and a further rally to 26100/26300-26400/26500;
otherwise, sustaining below 24440, Nifty Future may fall to 24300/24000 and
23600/23350*-23900/23750 and 23400*/23100-22600/22200 and further 22000-21700*
the coming days.
Technically,
Bank Nifty Future (56000) now has to sustain over 55600 for a recovery to 57000/57900 and only after
sustaining 58100, may further rally to 58500/58900-60500/61000 and a further
61500-65750 in the coming days; otherwise, sustaining below 55500-400, BNF may
further fall towards 55000-54900 and 54500/54000-53500/53000 and
52500*-52000/51500 and further 51000/50500-50000/49700 and 49200-47700 in the
coming days.
Technically,
USDINR-I now (87.75) has to sustain over
88.00 for a further rally to 88.50/88.75-89.00/89.50 and
90.00/90.50-91.00/91.50 and 92.50-94.50 in the coming days; otherwise,
sustaining below 87.50-87.00, USDINR may again fall to 86.50/86.00-85.50/;85.00
and 84.00-83.50 in the coming days.
Disclaimer: I
am an NSE-certified Level-2 market professional (Financial Analyst- Fundamental
+ Technical) and not a SEBI/SEC-registered investment advisor. The article is
purely educational and not a proxy for any trading/investment
signal/advice. I am a professional
analyst, signal provider, and content writer with over ten years of experience.
All views expressed in the blog are strictly personal & independent and may
or may not match with any organization with, I may be associated.
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