Summary of this article
Sensex plunged 695 points and Nifty fell 212 points in early trade
Equities fall as US moved to impose steep 50 per cent tariffs on Indian imports
Concerns over exports, margins, rupee and trade deficit drove broad-based selling
Nifty Pharma, PSU Bank, Metal and Realty indices declined over 1 per cent each
Domestic equities came under pressure in the early session on August 26 as the US Department of Homeland Security (DHS) issued a draft notice late on August 25 for the additional 25 per cent tariff on India. This will take the effective tariff to 50 per cent. The draft notice reiterated that the measure came in response to India’s indirect support to Russia for its invasion of Ukraine.
Ninad Jadhav, Equity Research Analyst at LKP Securities, said Indian markets turned risk-averse as the US prepares to impose 50 per cent tariffs from August 27. “The immediate concern is pressure on export growth, margin compression, and a wider trade deficit, triggering selling in export-linked stocks and weakening the rupee,” Jadhav added.
Selling Pressure Across Market Breadth
Barring FMCG, Auto and IT, all other sectoral indices traded firmly in the red in early session. On the other hand, Nifty Pharma, Nifty Healthcare, Nifty Realty, Nifty PSU Bank and Nifty Metal fell more than 1 per cent each.
Nifty IT traded flat, swinging between red and green, while Nifty FMCG traded higher by more than half a per cent. Nifty Auto also quoted in green, about 0.15 per cent higher.
The broader market mirrored the pressure on the benchmarks as the both the Nifty Midcap 100 and the Nifty Smallcap 100 traded more than 1 per cent lower. Nifty Total Market Index, which tracks the performance of 752 stocks across large-, mid-, and small-cap segments, also fell up to 1 per cent.
Mirroring Weakness In Asian Markets
The weakness in Asian markets also weighed on investor sentiment.
China's blue-chip CSI 100 and the broader SSE Composite traded lower by 0.4 per cent each, Japan's large-cap Nikkei 225 and broader Topix also traded lower by 1 per cent each. The Hong Kong-based Hang Seng traded down by over 0.80 per cent, while South Korea's KOSPI quoted down by 0.95 per cent.
Persistent FPI Selling
The weak investor sentiment also comes amid persistent foreign portfolio investor (FPI) selling. So far in August 2025, FPIs have sold domestic equities worth Rs 21,700 crore.
According to Karan Aggarwal, CFA, co-founder and CIO of Elever, a Sebi-registered portfolio management services (PMS) provider, foreign investors have traditionally given Indian equities a “good boy premium” compared to peers like Russia and China, but ongoing tariff tensions with the US could erode that advantage in the near term.
“India and Brazil were considered ‘good boys’ who play by rules designed to further US interests and that’s why, FPIs generally used to award ‘good boy premium’ to Indian equities leading to long-term average price-to-earnings (P/E) ratio of 20x-25x for Nifty 50 benchmark,” said Aggarwal.
Aggarwal added that the current FPI trend could continue and keep upside capped for next few months. However, he cautioned that rising political risk may offset positives such as the recent S&P rating upgrade. As a result, foreign selling could continue and keep the upside capped in the near term, he said.
How Has India Responded To US Tariffs So Far
India has been dutyfully firm in its stance against US President Donald Trump’s high tariffs on the country. Prime Minister Narendra Modi, while addressing a rally in Ahmedabad, said, “My government will never let any harm come to the small entrepreneurs, farmers, and animal keepers. No matter how much pressure comes, we will keep increasing our strength to withstand.”
A Ministry of Commerce official told Reuters on August 26 that the government has “no hope” for any immediate relief or “delay” in US tariffs.
Meanwhile, India has been pivoting towards US rivals, China and Russia.
Last week, Chinese Foreign Minister Wang Yi visited India in a bid to improve bilateral ties amid Trump’s tariff threats. India and China should view each other as "partners" rather than "adversaries or threats", said Yi during his two-day India visit on August 18-19.
On August 19-21, Foreign Minister Jaishankar visited Russia and met with Russian President Vladimir Putin and other senior officials to enhance trade and economic cooperation. He was there to co-chair the 26th Session of the India-Russia Inter-Governmental Commission on Trade, Economic, Scientific, Technological and Cultural Cooperation (IRIGC-TEC).
