Navigating Tariff-Induced Volatility in Indian Equity Markets

By Hitender Tanwar, Franchise Partner, Motilal Oswal Financial Services Ltd. | June 25, 2025

Global trade tensions, particularly U.S.-China tariff escalations, have introduced significant volatility into capital markets worldwide, including India’s BSE Sensex and NSE Nifty. As a financial advisor with over 25 years of experience, I’ve seen markets navigate such disruptions before. This blog explores the impact of tariffs on Indian equities, sectors to watch, and strategies to protect and grow your wealth. Start your investment journey with us at Open an Account.

Understanding Tariff-Induced Volatility

Recent U.S. tariffs, averaging 30% on Chinese imports, have disrupted global supply chains, with ripple effects on India’s export-driven economy. China’s May 2025 export data shows a 12.6% surge to Australia and 14.8% to Southeast Asia, suggesting transshipment to bypass tariffs, but a 1.2% decline to South Korea highlights uneven impacts. India, a key player in IT, pharmaceuticals, and textiles, faces both challenges and opportunities. Key Impacts:

Input Cost Inflation: Tariffs raise costs for imported raw materials, affecting sectors like auto and electronics.
Export Slowdown: Reduced global demand from trade wars could impact IT services and textiles.
Supply Chain Shifts: India benefits as companies diversify manufacturing away from China.

India’s GDP growth is projected at 6.8% for FY26 (IMF, April 2025), but trade uncertainty could shave off 0.2-0.3%. Investors must stay agile.

Sectors to Watch

Tariff volatility creates winners and losers. Here’s where Indian investors should focus:

1. Pharmaceuticals

India’s pharma sector, exporting 50% of its output, benefits from reduced reliance on Chinese APIs (Active Pharmaceutical Ingredients). Companies like Sun Pharma and Dr. Reddy’s are well-positioned. Tip: Consider pharma mutual funds for diversified exposure.

2. IT Services

Despite global slowdown fears, India’s IT giants (TCS, Infosys) are resilient due to digital transformation demand. However, monitor U.S. client spending. Tip: Use SIPs in large-cap IT funds to mitigate volatility.

3. Consumer Goods

Domestic consumption (60% of GDP) shields FMCG stocks like Hindustan Unilever from global shocks. Tip: Invest in consumption-focused ETFs.

4. Auto and Electronics

Higher input costs could pressure margins for Tata Motors and Havells. Tip: Wait for dips to enter quality stocks.

Investment Strategies

Volatility demands disciplined investing. Here’s how to navigate:

Diversify Globally: Allocate 10-15% to international mutual funds to hedge against India-specific risks.
Focus on Quality: Invest in companies with strong balance sheets and pricing power.
Use SIPs: Systematic Investment Plans average out market fluctuations.
Hedge with Gold: Allocate 5-10% to gold ETFs amid rising prices (up 15% YTD, June 2025).

Pro Tip: Leverage Motilal Oswal’s MO Investor platform for real-time research and portfolio tracking.

Role of Research

Motilal Oswal’s award-winning research, covering 3,600+ companies, empowers our clients to make informed decisions. Our analysts recommend a 60:40 equity-debt mix for moderate-risk investors in 2025, with a focus on large-cap and multi-cap funds. Download our eBook, Investing 101, for more insights.

Regulatory Compliance

We adhere to SEBI, BSE, NSE, and IRDAI guidelines, ensuring transparent KYC, risk profiling, and documentation. File grievances via SEBI SCORES. Disclaimer: Investments are subject to market risks. Read scheme documents carefully.