Picture Credit: The Economic Times
Donald Trump’s latest tariff threats have triggered significant turmoil in Indian markets, with foreign investors pulling out billions. In March 2025 alone, over ₹24,000 crore ($2 billion) left Indian markets, continuing a broader sell-off trend that has persisted since the start of the year. So far, foreign portfolio investors (FPIs) have withdrawn $15 billion from Indian stocks, largely due to domestic concerns, but now Trump's trade policies have added fuel to the fire.
Initially, India’s economic slowdown and weak corporate earnings drove investor skepticism. More than 60% of the Nifty 50 companies revised their profit projections downward last month, signaling weaker-than-expected earnings. However, the situation worsened when Trump renewed his aggressive rhetoric on tariffs, claiming India imposes “massive tariffs” that hurt U.S. trade.
Trump has set April 2, 2025, as the deadline for imposing reciprocal tariffs on India. He has particularly targeted auto tariffs, which he claims are unfairly high. Despite India’s recent tax cuts on some imports, Trump appears dissatisfied, escalating concerns that increased trade restrictions could damage both economies.
The uncertainty has hit U.S. investors in Indian markets the hardest, as the U.S. is the largest source of FPIs in India. Previously, nearly 50% of all FPI investments in India came from U.S. investors, but recent declines have seen portfolios shrink by up to 20%. The Indian rupee has also taken a hit, falling to ₹88 per U.S. dollar, marking its worst single-day decline in a month.
Adding to investor losses, the weakened rupee lowers the value of U.S.-based FPIs' holdings, as their investments in India are denominated in rupees but converted back to dollars when withdrawn. The overall impact? A staggering 24% decline in the value of U.S. investments in India since September 2024.
With the Indian stock market losing over $1 trillion in value since late 2024, volatility is expected to continue. Goldman Sachs predicts that the worst may be over, but warns that April will be a decisive month as Trump finalizes his tariff decisions. If the U.S. imposes higher duties on Indian exports, it could hurt Indian businesses while also affecting American companies and investors.
While India has attempted to ease tensions with tariff reductions, the uncertainty surrounding U.S.-India trade relations and global investment flows remains a significant challenge. The coming weeks will determine how severely these tensions impact India’s financial stability and economic outlook.
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