Stock market, Trump tariff: Will there be knee-jerk reaction today? Stocks to watch

The imposition of 25 per cent tariff on India by the Trump administration is higher than Dalal Street expectations, which could potentially weigh on capital flows.  An unspecified 'additional penalty' for India’s energy and military purchases from Russia could add to the market uncertainty, analysts warned. Given huge selling by promoters and private equity investors and the weakening of retail sentiment in the past few months, FPI flows have now become critical in shaping market outcomes, they said. 

At last count, Gift Nifty was hinting at a gap-down start for Nifty today. But analysts do not expect any big selloff in the near term. They anticipated rangebound trading, with investors reacting to quarterly earnings.  

"The direct impact is likely to be on stocks and sectors where the US sets the marginal price – pharma, auto ancillaries, a few industrials, cables and wires, tiles, etc. However, the indirect impact of capital flight is likely to be more dominant and could weigh on small and midcaps (SMIDs) and high-beta domestic cyclicals (real estate, NBFCs and industrials)," Nuvama said.

On the other hand, any rupee depreciation could help IT and the sector could potentially outperform given the now low relative valuations. "Overall, we maintain cautious stance on markets," Nuvama said.

Utsav Verma, Head of Research - Institutional Equities at Choice Broking said investors will reassess their strategies with a mix of caution and optimism. 

"Sectors like textiles, pharmaceuticals, and automotive components—key Indian exports—are likely to be most impacted and may see reduced investor interest in the short term. However, recent progress in trade negotiations suggests a constructive path forward, and we believe that the trade deal will eventually follow provided both nations show the necessary political will," he said.

Verma said many investors expect the tariff rate to eventually settle around 15 per cent, paving the way for renewed confidence and stronger trade ties. 

"In the short term, market will try to shed off its complacency. We do not expect huge knee-jerk reaction but a rangebound market focused on ongoing earnings," he said.

The US is India’s largest export destination, accounting for 18 per cent of total exports and 2.2 per cent of GDP. Key exports include pharmaceuticals, smartphones, gems & jewellery, industrial machinery, auto components, textiles and iron & steel. These industries form the backbone of India’s manufacturing sector and have some of the largest formal sector employers, especially labour-intensive industries such as gems and textiles, Nomura noted.

"Notably, for a number of sectors, the exports to the US account for 30-40 per cent of India’s global exports of that product category, underlining the sensitivity of overall export and industrial output growth to access to the US market.  For these exporting sectors, the impact is likely to vary depending on their elasticity of demand, extent of value added and the level of cost and scale competitiveness. Margin squeeze is likely across-the-board, but may particularly hit manufacturers in sectors with lower value added and thinner margins, including gems & jewelry and textiles," Nomura said.

India also majorly exported marine food products to the US and shrimps and prawns account for 2.3 per cent of overall exports to the US), and India could lose some of its competitive edge to other suppliers. Pharmaceuticals and electronics are currently not subject to tariffs (given section 232 investigations ongoing), but as these sectoral tariffs are imposed, the higher tariff burden will likely be passed on to end-consumers, Nomura said.

Kunal Chaudhary, Tax Partner at EY India said  the US could create short-term challenges for the electronics and manufacturing sectors particularly at a time when investment momentum has been strong, driven by supply chain diversification and strategic alignment between the two economies.

"While these tariffs could cause temporary uncertainty for cross-border investors and OEMs evaluating India as an export base, they also underscore the need for India to deepen its competitiveness through lower input tariffs, stronger trade access, and accelerated infrastructure execution," Chaudhary said.

Chaudhary said the current developments offer India a chance to reduce exposure to risks and emerge as a dependable, cost-effective alternative in the global manufacturing landscape. The upcoming trade negotiations with the US offer a path to restore balance, and if handled strategically, can even enhance India’s appeal as a long-term investment destination, he said.

"The Indian gem and jewellery sector, in particular, stands to be severely impacted. The United States is our single largest market, accounting for over $10 billion in exports—nearly 30% of our industry’s total global trade," said Kirit Bhansali Chairman at GJEPC.