50% tariff! The United States will impose tariffs on India tomorrow, and Indian stocks will have the worst relative performance in 20 years

As tariff threats escalate, pessimism is spreading in the Indian stock market.

According to CCTV News, on August 25 local time, the U.S. Department of Homeland Security issued a notice proposing to impose a 50% tariff on Indian goods starting from midnight on August 27. The notice stated that the tariff would apply to "all Indian goods imported for consumption or storage for consumption."

Additionally, according to previous reports from CCTV, earlier this month, Trump threatened to raise tariffs on Indian goods from 25% to 50% as a punitive measure for its purchase of Russian oil.

Currently, the tariff threat has significantly impacted the Indian stock market. Market data shows that the MSCI India Index has underperformed the MSCI Emerging Markets Index for the fourth consecutive month, lagging by more than 15 percentage points this year, heading towards its worst relative annual performance in over two decades.

Peace negotiations at a standstill, tariffs set to increase as scheduled

The Trump administration previously hoped to use this move to force Russia back to the negotiating table to end the war with Ukraine.

However, Trump stated earlier on Monday that due to Putin's hostility towards Zelensky, no meeting has been arranged, and he is even uncertain whether a meeting will take place.

This diplomatic stalemate directly led to the advancement of the tariff measures. According to CCTV News, Trump also stated that if the two sides do not hold a direct meeting within two weeks, there may be "serious consequences"; he will make a "very important decision," which could be “massive sanctions or tariffs”.

Indian stock market under pressure, foreign capital continues to flow out

Amid the looming tariff clouds and concerns about the domestic economy, foreign investors are accelerating their exit from India's $5.3 trillion market.

According to Bloomberg data, foreign investors have net sold Indian stocks for the second consecutive month in August.

Rajeev De Mello, portfolio manager at Gama Asset Management, stated:

"This trade war with the United States is crucial, so I expect that (the Indian stock market) will not see a catching-up rally until the issues are resolved."

He added that recent comments from U.S. officials profiting from the war are also "worrisome signs."

Investor pessimism is not limited to the stock market. Concerns over the widening fiscal deficit have also put pressure on the Indian bond market, with the yield on India's benchmark 10-year government bonds rising by 22 basis points this month, and investors expect this trend to continue.

Economic Growth May Be Dragged Down

Additionally, the new tariffs are expected to have a direct impact on India's already slowing economic growth.

According to Citigroup's estimates, a 50% tariff rate could reduce India's annual economic growth rate by 0.6 to 0.8 percentage points.

Abhishek Upadhyay, a senior economist at ICICI Securities, warned that if the 50% tariff rate persists, the impact on India's full-year GDP could be as high as 1%, which would have broader implications for monetary policy and bond yields.

Although the consumption tax cuts recently introduced by Indian Prime Minister Modi are expected to boost the economy, analysts believe that profits in sectors such as banking and IT will still be under pressure.

However, the Governor of the Reserve Bank of India has stated that the impact of tariffs on India may be minimal, and the central bank's easing cycle could also support economic growth