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Informist, Wednesday, Apr. 9, 2025

By Gopika Balasubramanium

MUMBAI – Benchmark equity indices closed lower on Wednesday due to weak cues from global markets as the trade war between the US and China escalated with the US imposing 104% tariff on Chinese imports. Analysts are worried that US tariffs could hurt growth globally, with the Reserve Bank of India cutting its projections for India's GDP growth.

Investors largley looked past the RBI's decision to cut the repo rate by 25 basis points to 6.00%, which analysts said was already priced in by the market. The central bank also changed its stance to 'accomodative' from 'neutral', raising hope of further cuts in interest rates in the future.

While this was positive, the uncertainity around US tariffs and its impact on global economic growth continued to hit sentiment. "It (rate cut) is incrementally positive for markets, but it cannot protect from what ripple effects may come next," Seshadri Sen, head of resasearch, at Emkay Global Financial Services, said while pointing to the possiblity of recession in the US.

On Wednesday, the Nifty 50 closed at 22399.15 points, down 0.6% and the Sensex closed at 73847.15 points, down 0.5%. Information technology and financial services stocks were the biggest drag on the Nifty 50. Bucking the trend, shares of domestic-oriented companies such as fast-moving consumer goods and consumer durables companies closed higher. Broader market indices also faced selling pressure with the Nifty Smallcap 250 index down over 1% and the Nifty Midcap 150 index down 0.5%.

The uncertainty around tariffs is making investors jittery, and RBI Governor Sanjay Malhotra acknowledged this in his monetary policy speech. Considering the uncertainty, the central bank trimmed its forecast of real GDP growth for 2025-26 (Apr-Mar) to 6.5% from 6.75% earlier.

"... what truly stood out wasn't the decision (on interest rates), but the candid admission by the governor on the global trade uncertainties," Apurva Sheth, head of market perspectives and research, SAMCO Securities said, in a note. "He (RBI governor) highlighted how unresolved geopolitical tensions and tariff wars are clouding the global growth outlook. The most striking remark came when he acknowledged the limits of even the central bank's own capacity to quantify the full impact of these uncertainties."

Sentiment was also negative as US President Donald Trump on Tuesday said he planned to come up with "major" tariff on pharmaceuticals "very shortly" to incentivise drug companies to relocate to the US. Shares of most pharmaceutical stocks ended lower.

Information technology stocks fell sharply. Shares of Wipro closed 4.3% lower and those of Tech Mahindra, Infosys, and HCL Technologies closed 1.7-3.2% lower. On Wednesday, global brokerage Jefferies downgraded the ratings and cut the target prices of a few IT stocks by up to 32%, as per a post on X by CNBC-TV18. The brokerage also trimmed its earnings per share estimates for domestic IT companies by 2-14%. Greater uncertainty following the US tariffs is likely to affect demand in the IT sector in FY26, the borkerage said. Fears of a slowdown in the US economy have heightened in the market, with JP Morgan saying there is a 60% chance of a recession in the US. 

Fears of recession in the US have pushed investors to even sell US bonds, which is usually considered safe. The yield on the 10-year US Treasury note briefly rose above 4.50% overnight compared to 4.20% on Tuesday.

The selling in US bond markets could be due to market expectations of sharp rise in prices due to tariffs. Tariffs by the US are likely to lead to inflation, which in turn could curb the US Federal Reserve's ability to cut interest rates despite slowing growth, Reuters reported.

Back home, the pharmaceutical sector faced pressure due to new threats from Trump of tariffs on the sector. India's pharmaceutical products exports rose 10% to $27.85 billion in 2023-24 (Apr-Mar) and over 31% of this was exported to the US, according to the Pharmaceutical Export Promotion Council of India.

Domestic pharmaceutical companies have significant exposure to the US market, with Zydus Lifesciences, Aurobindo Pharma, and Dr. Reddy's Laboratories having 47%, 46%, and 41% revenue exposure to the US, respectively, Geojit Investments Ltd. had said in a report last week. "Companies are most likely to pass on any tariff-related rise in costs to the customers in US," a research analyst at a domestic brokerage said. "But there is a point that cannot be missed, that is companies will have room to pass on the costs to the drugs which have a competitive edge in the US market," he said. If a local player in the US can sell a drug at a discounted price, a US wholesale dealer would not prefer drugs offered by Indian companies, hence the price has to be absorbed by the company, the analyst said.        

Bucking the trend, FMCG stocks in the Nifty 50 such as Nestle India, Hindustan Unilever, and Tata Consumer Products closed 1.8-3.0% higher, and were among the top gainers. FMCG companies' large dependence on domestic markets, which is expected to shield them from tariff-related threats, has pushed investors to buy these stocks, analysts said. The fall in inflation is another key factor supporting a positive outlook for FMCG companies, analysts said. However, the March quarter earnings of these companies are expected to be muted because of low demand, higher consumer inflation, and high commodity prices, analysts said.

Shares of oil marketing companies such as Hindustan Petroleum Corp., Castrol India, Bharat Petroleum Corp., and Indian Oil Corp. closed 0.5-2.8% higher as Brent crude oil futures hit over a four-year low, falling below $60 per barrel. A fall in crude oil prices could help reduce raw materical costs for oil refining companies, improving their profitability. Some gas companies such as Petronet LNG, Gujarat Gas, and Gujarat State Petronet were 0.6-1.2% higher. 

Shares of gold loan companies such as Muthoot Finance and IIFL Finance closed 6.7% and 2.5% lower, after coming off lows. Shares of Muthoot Finance had hit a 10% lower circuit at INR 2,063 before coming off lows. These stocks fell sharply amid fears of stricter guidelines on gold loans after Reserve Bank of India Governor Sanjay Malhotra said the cental bank would come out with some guidelines on gold loans. Later, the governor claried that he did not say the central bank would "tighten" guidelines, which helped ease some selling pressure on shares of gold financers. For Muthoot Finance, gold loans formed over 95% of total assets under management as of Dec. 31, and for IIFL Finance, it was at 21%.

* Of the Nifty 50 stocks, 15 rose and 35 fell

* Of the Sensex stocks, 12 rose and 18 fell

* On the NSE, 1,083 stocks rose, 1,747 fell, and 79 were unchanged

* On the BSE, 1,529 stocks rose, 2,359 fell, and 142 were unchanged

* Nifty PSU Bank: down 2.5%; Nifty IT: down 2.2%; Nifty FMCG: up 1.8%

BSE                                               NSE

Sensex: 73847.15, down 379.93 points or 0.5%      Nifty 50: 22399.15, down 136.70 points or 0.6%

End

US$1 = INR 86.69

Edited by Avishek Dutta

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