Why Market Is Down Today: Trump’s Tariff Threat Impact

Why the Market Is Down Today: Trump’s Tariff Threat Impact 

Indian stock market declined today because of the concerns that U.S. President Donald Trump has announced trade tariffs recently. Nifty 50 index fell 1.37% to 23,024.65, while BSE Sensex dropped 1.6% or 481 points to 27,623.36. There are fears that the tariffs from the U.S. on Mexico and Canada could be extended up to India wherein markets may be affected.  

The volatility index recorded its highest since August 2024 as investors getting more nervous. Every sector of the major indices ended down; small-caps and midcaps shed about 2.3% too. Foreign portfolio investors have pulled out a whopping $6.7 billion from Indian equities and bonds in January.  

Detailed Video

Stock Market Crash: Key Reasons for Today’s Nifty And Sensex Fall 

1. Trump’s Withdrawal from the Paris Climate Treaty

During his presidency, Trump formally declared the U.S. exit from the Paris Climate Treaty an international agreement adopted in 2016 to ramp up global action against climate change on January 20th.

 The Paris Agreement strives to hold the average global temperature to well below 2°C above pre-industrial levels and to pursue efforts at 1.5°C. It framed the treaty around decarbonization led by renewable energy.

2. Fear Amid Trump’s Tariff Hike on Mexico and Canada

Adding to the turmoil, uncertainty looms over potential tariffs on imported goods. Donald Trump after taking the charge imposed a heavy tariff of 25% on Mexico and Canada effective from February 01, 2025, as a part of the new US Trade Policy. Trump's administration proposed a 10% blanket tariff on imports, with higher rates for the top three U.S. trade partners.

 

For India, this could mean:

• An increase in tariffs amounting to $7-8 billion nearly 10%.

• A potential decline in demand if these tariffs are passed on to U.S. consumers.

• Even a 10% tariff would have a negative impact on Indian exports, further straining trade relations.

The Indian market is apprehensive given that the same kind of tariffs can be levied against India stalls all trade progress. However, it is still unknown if US/China tariffs would have a place for India. If correct, it would spell doom for the Indian economy.

Just imagine a 10% tariff India could collapse losing $7 billion. What this means is that Indian exports will lose their competitiveness. This is a damper to the Indian economy. These additional raises in tariffs can also burden the trade relations between these countries and are bound to affect the businesses and investors in the two countries.

3. Weak Rupee against strong Dollar Indications

Since Trump's victory in the US Presidential Election in 2024, Mr Trump has shown strong indications of making the dollar stronger and stronger. He is all set to impose heavy tariffs on the countries. Since November 2024, the Rupee has fallen by 3% marking Rs.86 per dollar in Jan 2025.

 

(Sorce: fxstreet.com)

 

(Source: outlookbusiness.com)

 

4. Weak Q3 Results Expectations

Indian corporates share weak Q2 earnings in FY25 (particularly in Q2). Analysts expect very little improvement in Q3, mainly banking and a few IT names but also strongly caution against expecting a larger recovery. 

The faint hope of a Q3 earnings trend rebound from the December quarter looks to be fading and if anything, experts warn that investors expecting a robust recovery in Q3 are likely in for a letdown.

Q2 across most of the segments gave thin numbers. 45% of the companies in its coverage universe missed estimates as per a JM Financial brokerage firm. 

Corporate earnings anxiety fed on the mixed bag. Dixon Technologies shares declined by almost 14%, after reporting a fall both in Q4 consolidated net profit and revenue on a sequential basis. Zomato slipped 10% percent as quarterly numbers failed to show that Blinkits rapid expansion was not eating profitability.

Oberoi Realty fell 7.6% to a final close of Rs.525 on the back of the real estate sector. The weak results further worsened worry over the health of key sectors and left investors scared.

 5. FIIs Selling

As of 20 January 2025, the total FIIs selling was Rs.13,809.70 Cr which showed a negative or low trust of outsiders in the Indian market.

Conclusion

 The Indian market crashed drastically on grounds of things like Trump's tariff threats, faltering Q3 earnings estimates, and the rupee weakening YTD against the dollar. Heavy FII outflows coupled with the U.S. withdrawal from the Paris Climate Treaty deepened the market's pain. The range of problems together caused fear to the investors. Volatility in the market may continue for the time being as both global and domestic pressure are still very much there.  

DISCLAIMER: NOT a buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always discuss with an eligible financial advisor before investing.