Why Did Market Fall Despite FM's Big Bang Tax Reforms? Trump Impact On Nifty, Sensex?

In early trade on Monday, February 3, 2025, the Indian stock market experienced significant losses with the Sensex plummeting over 700 points and the Nifty 50 dipping below 23,250. This drastic decline was attributed to weakening global cues, particularly the fallout from US President Donald Trump 's imposition of tariffs on key trade partners—Canada, Mexico, and China.

Trump Tariffs Trigger Market Panic and Currency Volatility
Experts pointed out that Trump's aggressive tariff measures—imposing a 25% duty on imports from Mexico and Canada, and a 10% levy on Chinese goods—heightened fears of a global trade war. The announcement sent shockwaves through global financial markets, prompting a broad-based sell-off as investors fled to safe-haven assets.

According to Ajay Bagga, a market expert, "The markets were caught off guard by Trump's tariff threats, and his actions have now forced significant market adjustments. This escalation has sparked fears of retaliatory measures and competitive currency devaluations, particularly by China, leading to heightened uncertainty and risk aversion among investors."

Rupee Hits Record Low Amid Dollar Surge
Simultaneously, the Indian Rupee saw a sharp depreciation, opening at a record low of Rs. 87 per US Dollar for the first time. The surge in the dollar index, driven by Trump's tariff announcements, exacerbated the rupee's decline and increased the cost of imports for India, a net importer nation.

Sugandha Sachdeva, Founder of SS WealthStreet, highlighted the impact: "The strengthening dollar and sustained Foreign Institutional Investor (FII) outflows have weighed heavily on Indian equities. The ongoing volatility is expected to persist unless there's a stabilization in global trade relations or supportive domestic policies, such as potential rate cuts by the Reserve Bank of India."

Market Reaction and Investor Sentiment
Despite recent positive domestic developments like a progressive budget and tax-friendly policies, the Indian stock market struggled under the weight of global uncertainties. Continuous FII selling and geopolitical tensions further dampened investor confidence, creating a cautious outlook for future market performance.

Preeti Zende, Chief of Apana Dhan Financial Services, advised investors to maintain a steady approach amidst market turmoil: "Global trade tensions and currency fluctuations have disrupted investor sentiment. Investors must adhere to their asset allocation and avoid succumbing to fear or greed during these challenging times."

Future Outlook and Market Stability
Looking ahead, market analysts anticipate continued volatility in the Indian stock market as global trade dynamics evolve. The impact of Trump's tariffs on global growth, inflationary pressures, and central bank policies will likely dictate market trends in the coming weeks. Investors are advised to stay informed and maintain a long-term investment perspective amid the current uncertain economic climate.

In summary, the Indian stock market's sharp decline reflects broader concerns over escalating trade tensions and their implications for global economic stability, with experts urging caution and strategic investment planning in response to ongoing market volatility.