Indian equity markets staged a surprising intraday recovery on July 31, bouncing back from steep morning losses triggered by Donald Trump’s announcement of a 25 percent tariff on Indian exports, coupled with an unspecified penalty over New Delhi’s continued energy ties with Russia.
Despite the rebound, both benchmark indices ended in the red, with the BSE Sensex closing at 81,185.58, down 0.36 percent, and the Nifty 50 settling at 24,768.35, down 0.35 percent. The broader market mood remained cautious, and the BSE’s total market capitalisation dropped by over Rs 5 lakh crore in a single day.
Markets opened with a sharp gap down, with benchmark indices losing over 1,100 points intraday as Trump's remarks labelling India’s trade policies as “the most strenuous and obnoxious” sent shockwaves through investor sentiment. The US tariff, set to take effect from August 1, is higher than the 20 percent levied on Vietnam and the 19 percent imposed on Indonesia and the Philippines.
However, as the session progressed, markets clawed back lost ground. The Sensex rebounded over 1,100 points from the day’s low and the Nifty reclaimed the 24,950 level at one point, driven by defensive buying and expectations of a diplomatic resolution.
Despite the tariff’s magnitude, analysts say the limited overall contribution of US-bound exports to India’s GDP—around 2 percent—helped cushion the impact. Furthermore, optimism around ongoing negotiations and expectations that the final tariff rate may be moderated to 15–20 percent offered some relief.
“There’s a growing belief that the tariffs are a pressure tactic ahead of negotiations, especially targeting India’s agricultural trade barriers,” said Pankaj Pandey of ICICI Securities. “The market took a hit, but it didn’t collapse because many believe this may not escalate much further.”
G Chokkalingam of Equinomics added, “The pain will be felt more at a sectoral level than across the board.”
The biggest casualty of the day was the textile and apparel sector, with export-focused stocks nosediving up to 9 percent on fears of immediate impact. Other vulnerable sectors include auto components, leather goods, gems and jewellery, and select food products.
Among the worst performers on the Nifty were: Tata Steel, Sun Pharma, Adani Ports, Reliance Industries.
On the flip side, FMCG and private banking stocks held up well. Key gainers included: Hindustan Unilever, ITC, Kotak Mahindra Bank, ICICI Bank and Eternal.
Volatility also spiked, with India VIX rising nearly 4 per cent, reflecting the market's unease.
Market watchers said the resilience shown in the latter half of the session was partly due to investor focus shifting back to fundamentals.
“Q1 results have been broadly in line with expectations. There is hope of stronger earnings momentum in the second half of FY26, which could help markets weather short-term trade shocks,” said Prashanth Tapse of Mehta Equities.
Foreign institutional investors remained net sellers, with July’s total outflows topping Rs 42,000 crore, driven by global uncertainty and fears of escalation in US trade policy.
While the immediate shock of Trump’s tariffs may have been absorbed, the situation remains fluid. The full impact will unfold as clarity emerges on the quantum and scope of penalties. Analysts say the market’s direction will now hinge on diplomatic developments, global cues, and upcoming RBI policy signals.
“Investors should brace for volatility,” warned Tapse. “The penalty clause remains a grey area and could yet surprise the market.”
