Sensex, Nifty Stage Dramatic Recovery After US Tariff Shock

The Indian stock market demonstrated remarkable resilience on Thursday, August 7, 2025. After a sharp downturn triggered by adverse global cues, a powerful last-hour rally saw the benchmark indices erase all losses to close in positive territory, defying concerns over a potential trade dispute with the United States.

US Tariff Announcement Rattles Indian Markets

The trading day began on a turbulent note following an announcement from the United States. US President Donald Trump signed an executive order imposing an additional 25% tariff on a wide range of Indian goods. This move, set to take effect on August 27, 2025, effectively doubles the existing tariff rate to 50%. The primary justification cited for the hike was India’s continued import of Russian crude oil.

The market’s reaction was swift and sharp. The BSE Sensex plunged 335.71 points at the opening bell to hit an intraday low of 80,208.28. Similarly, the NSE Nifty 50 slipped 114.15 points to touch a low of 24,460.05. Sectors with significant export exposure to the US, such as textiles, leather, and marine products, faced the brunt of the negative sentiment.

The Indian government promptly condemned the move as “unfair, unjustified, and unreasonable.” Prime Minister Narendra Modi, speaking at a separate event, reiterated India’s commitment to its domestic interests, stating that the nation would not compromise on the welfare of its farmers and fishermen.

A Stunning Last-Hour Recovery

However, in a dramatic turnaround, the final hour of trading saw a surge of buying activity. This “buy-the-dip” sentiment triggered a significant short-covering rally, completely reversing the day’s losses.

The recovery was spectacular. The Sensex clawed back over 800 points from its intraday low to close at 80,623.26, a net gain of 79.27 points (0.10%). The Nifty 50 mirrored this performance, recovering 252 points from its low to end the day at 24,596.15, up 21.95 points (0.09%).

This powerful rebound was led by defensive sectors. The Nifty IT and Nifty Pharma indices, often seen as safe havens during economic uncertainty, ended the day with gains of 0.87% and 0.75% respectively.

What This Means for Investors

Thursday’s session was a textbook example of market volatility and the importance of avoiding panic-driven decisions. The market’s ability to absorb the shock and bounce back suggests a few key takeaways:

1. Underlying Strength: The market’s recovery suggests confidence in the underlying strength of the Indian economy. The robust domestic consumption narrative is seen as a buffer against global headwinds, with investors betting that the overall impact of the tariffs will be manageable.
2. Bargain Hunting: A sharp fall in an otherwise structurally sound market often presents an opportunity for long-term investors to accumulate quality stocks at lower prices. The late-session buying indicates that many saw the dip as such an opportunity.
3. Negotiation Window: The period leading up to the August 27 effective date provides a window for diplomatic negotiations. The market may be pricing in the possibility of a de-escalation or a negotiated settlement between India and the US.

However, it’s crucial to remain cautious. Ajay Yadav, CEO & CIO at Wise Finserv, noted that the narrowing yield gap between US and Indian government bonds has been contributing to foreign portfolio investor (FPI) outflows, a trend that could continue to exert pressure on the markets.

What to Watch Next

For retail investors, the key is to stay informed and not get swayed by short-term noise. Here are a few things to keep an eye on:

• Diplomatic Developments: Any news or statements from either the Indian or US governments regarding the tariffs will be a major market mover. The deadline of August 27 is a key date to watch.
• FPI/DII Data: Keep a close watch on the daily flow of funds from Foreign and Domestic Institutional Investors. Consistent buying from DIIs has been a major supporting factor for the market.
• Technical Levels: For the Nifty 50, technical analysts see the 24,450-24,500 zone as a crucial support level. On the upside, the 24,700-24,800 range will act as immediate resistance. A decisive move beyond this range could set the trend for the coming days.
• Sector-Specific Impact: Continue to monitor companies in the textile, auto ancillary, and chemical sectors that have high revenue exposure to the US market, as they are likely to remain volatile.

Thursday’s trading session was a roller-coaster, but it ended with a powerful message: the Indian market’s spirit is not easily broken. While global challenges persist, the underlying domestic strength provides a formidable cushion.

Disclaimer: This article is for informational purposes only and should not be considered investment advice. Please consult with a financial advisor and conduct your own research before making any investment decisions.