US Tariff Hike Hits India’s Financial Markets Hard in August
In August, India’s financial scene felt the pinch from a big 50% tariff increase by the United States on imports from India. This shook up the markets, with stock exchanges suffering the most, as per a fresh report from rating agency Crisil.
Crisil’s Financial Conditions Index (FCI), which tracks money, debt, equity, and foreign exchange markets, dropped to -0.5 in August from -0.4 in July. A lower score means tighter financial conditions compared to the previous month, and a negative number shows things are stricter than the long-term average since April 2010. Still, it stayed within a safe range of one standard deviation.
Foreign portfolio investors (FPIs) pulled out money for the third month in a row, sparking worries about the tariff’s effects. This led to a 2% dip in key stock indices month-on-month. Benchmark indices like the S&P BSE Sensex fell 2%, while the Nifty 50 dropped 1.9%.
The FPI outflows hit equities hard, with net sales jumping to $4 billion—the highest since January—up from $2.1 billion in July. On the flip side, FPIs poured $1.5 billion into debt markets, the most in five months. This boost came from falling US Treasury yields (down 13 basis points to 4.26% on average) and lower crude oil prices.
These outflows also weakened the Indian rupee, which slid 1.6% against the dollar to an average of 87.5. It even touched a record low of 87.8 on August 29.
Crisil pointed out that while tariffs and FPI exits dragged down equity markets, some positives helped curb bigger losses. These include proposed GST rate cuts to spark consumption and a long-term credit rating upgrade for India by S&P Global.
Adding to the strain, yields on the 10-year government security rose sharply due to fears over the fiscal hit from GST changes. Money market rates edged up too, as surplus liquidity eased a bit.
Overall, August showed how global moves like US tariffs can ripple through India’s economy, tightening financial conditions and pressuring stocks and the rupee. Investors will watch closely for any relief from domestic policy tweaks.
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