Stock markets in India experience a decline following the Reserve Bank of India's decision to keep interest rates unchanged and escalating threats of US tariffs.
Indian Markets Suffer Sharp Decline Amid Tariff Hike and RBI Rate Pause
Indian markets experienced a significant drop on Wednesday, with both the Sensex and Nifty 50 falling sharply, primarily due to concerns over the sudden doubling of tariffs on Indian exports to 50% by U.S. President Donald Trump, and other negative factors such as persistent foreign investor outflows and weak corporate earnings.
The tariff hike specifically impacted export-oriented sectors such as gems, jewellery, apparel, textiles, and chemicals, contributing to the sell-off and dampening investor sentiment. The BSE Sensex lost 0.21% to 80,543.99, while the Nifty 50 fell 0.31% to 24,574.20, closing near three-month lows.
Additionally, the Reserve Bank of India’s (RBI) decision to pause interest rate hikes contributed to the market decline by reinforcing perceptions of weak economic momentum and limited immediate support from monetary policy. The RBI’s rate pause came amid subdued Q1 earnings and concerns about economic growth, which further discouraged investors, especially in an environment of global uncertainties and geopolitical tensions.
Fourteen of the 16 major sectors logged losses, with the broader small-cap index falling 1.1%. The consumer and auto indexes fell 0.9% and 0.5%, respectively, while rate-sensitive sectors such as realty lost 1.5%. IT and pharma stocks, which derive a significant share of revenue from the U.S., fell 1.7% and 2%, respectively. High-weight financials were little changed.
The underperformance of the market was due to the higher exposure of some companies to the domestic economy and borrowing costs. For example, Biscuit maker Britannia lost 4.1%, and Bharti Airtel's unit Bharti Hexacom lost 2.8%. The loss for Bharti Hexacom was due to weaker earnings, while the loss for Britannia was due to a quarterly profit miss.
The mid-cap index dropped 0.8%, with both small-cap and mid-cap indexes underperforming the benchmarks. The RBI maintained its policy stance at "neutral" following a surprise 50-basis-point cut in June.
In conclusion, the doubling of U.S. tariffs on Indian exports created sector-specific export risks, which, combined with the RBI's rate pause and sustained foreign selling pressure, led to the sharp decline in Indian markets. Investors will be closely watching the ongoing trade tensions and the RBI's future monetary policy decisions to gauge the market's direction in the coming days.
[1] Times of India
[2] Business Standard
[3] Economic Times
[4] Financial Express
[5] Livemint
[1] In a surprising turn of events, the Indian markets suffered a sharp decline on Wednesday as reported by Times of India, taking the Sensex and Nifty 50 to near three-month lows.[2] The Business Standard reports that the decline was primarily due to concerns over the tariff hike on Indian exports to the U.S., simultaneous foreign investor outflows, and weak corporate earnings.[3] Economic Times highlights that the BSE Sensex lost 0.21% and the Nifty 50 fell 0.31%, while sectors like gems, jewellery, apparel, textiles, and chemicals took the maximum hit.[4] Investors will be tracking the ongoing trade tensions and the RBI's future monetary policy decisions following the Reserve Bank of India’s (RBI) decision to pause interest rate hikes, as mentioned in Financial Express.[5] According to Livemint, personal finance investors should stay vigilant as geopolitical tensions, global economic conditions, and technology advancements can have a significant impact on general-news-related events like the Indian market's decline. Furthermore, sports enthusiasts and non-financial readers might find it valuable to understand how events like this can influence their favorite industries, particularly as IT and pharma stocks are heavily dependent on exports to the U.S.
