Mint Explainer: Global and Indian markets crack under Trump’s tariff shock—what this means for investors

India's stock markets woke up to a bloodbath on Monday. The benchmark Nifty 50 index lost 5% in opening deals as global jitters triggered a sell-off ahead of US President Donald Trump’s sweeping reciprocal tariffs becoming effective on 9 April.

The hit is expected to be especially painful for India's retail and wealthy investors.

Stock markets worldwide have already begun reflecting the fallout from fears of a global economic slowdown.

Futures trading on Japan’s Nikkei and Topix indices were briefly halted, while Indian equities fell sharply, with some investors likening the market turmoil to "Black Monday"—the largest single-day drop in Dow Jones history, when the index crashed 23% on 19 October 1987 amid persistent trade and budget deficits in the US. Echoes of that panic are surfacing again, underscoring the rising global uncertainty.

Read this | Tariffs may singe retail, HNI investors as Gift Nifty signals 2.4% drop on Monday

What does this mean for Indian markets, which had been on a tear from the onset of the pandemic on March 24, 2020, through Sept. 27, 2024—rising an impressive 250% to a record high of 26,277.35?

How vulnerable is India?

Like most open economies, India is deeply integrated into global trade and investment flows. A slowdown in global growth and cross-border trade will affect export-oriented businesses directly, while also triggering second-order effects on domestic-facing companies as overall growth decelerates.

India’s merchandise and services exports stood at around $750 billion during April–February of FY25, while imports reached $839.39 billion. With GDP estimated at $4 trillion, exports stood at 19% of GDP and imports 21% during the same period—underscoring India’s exposure to global value chains.

The US is India’s largest trading partner, and one of the few countries with which India had a trade surplus in 2023-24. India faces an additional 26% average tariff on its exports to the US, which is relatively lower than the levies imposed on several other Asian exporters but still a notable blow.

How are Indian stocks responding?

With global supply chains facing potential disruption from retaliatory trade measures, listed Indian companies are likely to see earnings and valuations come under pressure.

Among the biggest intraday drags on the Nifty were Infosys Ltd and Tata Consultancy Services Ltd (TCS)—India’s top two software exporters—along with Reliance Industries Ltd, a major petroleum products exporter, and State Bank of India, the country’s largest lender.

The day’s sectoral losses highlight the breadth of investor anxiety, particularly over India’s global linkages. If the trade standoff escalates, India’s GDP growth in FY26 may slip toward the lower end of the 6.3–6.8% forecast range in the Economic Survey.

How are retail investors placed?

Retail inflows into equities had surged over the past year, driven by growing investor participation and disciplined investing through systematic investment plans (SIPs).

According to data from the Association of Mutual Funds in India (Amfi), mutual fund inflows via SIPs rose 37% from ₹1.9 trillion in FY24 to ₹2.6 trillion in FY25 (April–February).

Direct equity investments by retail investors also saw a major jump. Investors poured ₹1.4 trillion into NSE-listed stocks during April–February FY25, a 197% increase over the ₹47,241 crore invested in the same period a year earlier, exchange data show.

The rising volatility now could hurt these investors. The Nifty 50 has dropped 16% from its September high, trading at an intraday low of 22,180 on Monday. If global uncertainty intensifies and risk appetite weakens further, the sell-off could deepen.

Read this | Here are the sectoral winners and losers from Trump's reciprocal tariffs

India’s investor base continues to expand rapidly, with the number of unique investors rising from 9.16 crore in FY24 to 11.17 crore in FY25 (April–February)—a staggering two crore new investors in just one year.

Portfolios in the red

On a one-year basis, investor portfolios have slipped into the red, with the Nifty 50 delivering a negative return of 1.5% as of Monday’s intraday level of 22,180.

Mutual fund investors aren’t immune either. Many are now staring at losses over the past year, and a senior wealth manager warns that ongoing volatility may dampen fresh flows into SIPs, while also increasing redemption pressures.

The pain is especially pronounced in small-cap stocks—a favourite among retail investors. The Nifty Smallcap 250 index has declined 9% over the same one-year period, underscoring the heightened vulnerability in riskier segments of the market.

What futures markets are indicating

Nifty futures saw an 8.5% increase in open interest on Monday, even as the index fell 3% intraday to 22,180 from Friday’s close of 22,904.45—suggesting fresh short positions are building as traders brace for further declines.

The global context remains concerning. The Nasdaq has officially entered bear market territory, down 23% from its record high of 20,204.58 on 16 December to Friday’s close of 15,587.79. This spells more pressure for Indian IT stocks—particularly large exporters—given their 11.91% weight on the Nifty, second only to financial services at 37.30% as of March-end.

Also read | India stays measured amid Trump’s tariff war, pushes for US trade deal

As weakness spreads from one market to another, the broader outlook remains grim. Investors should brace for continued volatility and more pain ahead across asset classes.