Stock Exchanges in India Shut Down in Celebration of Independence Day
In a surprising turn of events, India's stock markets managed to end marginally higher on Thursday despite the threat of increased secondary tariffs from the U.S. [1] This resilience can be attributed to a combination of factors, including a robust domestic market and a resilient domestic consumption.
S&P Global Ratings, a leading credit rating agency, upgraded India's sovereign ratings to 'BBB' from 'BBB-', citing robust economic growth, an improved monetary policy environment, fiscal consolidation efforts, and buoyant domestic demand. [2] This upgrade suggests that India's credit profile remains strong, and the impact of U.S. tariffs on the economy will be manageable.
India relies less on trade, with around 60% of growth driven by domestic consumption. [2] However, the primary purpose of the secondary tariffs is to penalize India’s continued crude oil imports from Russia. The additional 25% tariff adds to the existing 25% tariff, resulting in a total 50% duty on many Indian goods entering the U.S., India’s largest export market. [1][5]
The sectoral impacts vary. Labour-intensive sectors like textiles and gems & jewellery may face moderate challenges as these are export-oriented and depend heavily on the U.S. market. On the other hand, sectors such as pharmaceuticals, smartphones, steel, and certain others are relatively insulated due to exemptions, low existing tariff levels, or strong domestic demand. [3]
Moody’s projects that if India maintains Russian oil imports despite tariffs, real GDP growth might slow by about 0.3 percentage points from the current forecast of 6.3% in fiscal 2025-26. [4] However, resilient domestic demand and the services sector strength will help cushion this impact.
The tariff escalation reflects a broader U.S. geopolitical approach using "secondary tariffs" to pressure countries like India to alter their international alignments (specifically regarding Russia). This new trade tension introduces uncertainty but does not drastically impair India’s credit profile or macroeconomic fundamentals in the near term. [1][5]
In other market news, European stocks closed at their highest level in more than two months, with the German DAX and France's CAC 40 both surging around 0.8 percent. [6] The S&P 500 inched up to a new record closing high, while the tech-heavy Nasdaq Composite and the Dow ended flat with negative bias. [7] Gold is ticking up but poised for a weekly decline, and the U.K.'s FTSE 100 inched up 0.1 percent. [8]
Asian markets were mostly higher this morning, except for Hong Kong's Hang Seng index. [9] The dollar index is a tad softer, and oil prices are marginally lower. [10][11] The rupee closed 11 paise lower against the greenback on Thursday. [12] It's worth noting that India's exports to the U.S. constitute only 2 percent of GDP. [13]
In conclusion, while increased secondary tariffs pose challenges and costs to export sectors linked heavily to the U.S. market, India’s strong domestic economy, diversified export base, and upgraded credit rating suggest that the overall economic impact will be moderate and manageable for now. [2][3][4]
Businesses in India's export-oriented sectors, such as textiles and gems & jewellery, might face moderate challenges due to increased secondary tariffs from the U.S. Nevertheless, the finance sector can take solace in India's strong domestic economy, diversified export base, and upgraded credit rating, which suggest that the overall economic impact will be manageable for now.
