Indian benchmark indices staged a sharp recovery on Thursday, with the Nifty 50 climbing 1.8% to reclaim the 23,400 level after three consecutive weeks of losses. The rebound was triggered by reports that the United States may adopt a more targeted approach to reciprocal tariffs, easing fears of a blanket 25% levy on all imports.
What Sparked the Recovery
Bloomberg reported late Wednesday that the White House is considering narrowing the scope of its April 2 tariff announcement to focus on 15 countries with the largest trade surpluses with the US, rather than imposing universal tariffs. India, while still on the list, may face lower duties than initially feared on IT services and pharmaceutical exports.
The news sent the US Dollar Index tumbling to 103.8, its lowest in two weeks, providing additional relief to emerging market currencies. The Indian rupee strengthened to 86.18 against the dollar, its best level this month.
Sector Performance
The rally was led by sectors most exposed to global trade:
- IT Services: Nifty IT surged 3.2% with TCS (+3.8%), Infosys (+4.1%), and HCL Tech (+3.5%) leading. The sector had been the worst hit during the tariff selloff
- Pharma: Nifty Pharma gained 2.4% as fears of tariffs on Indian generic drug exports subsided. Sun Pharma and Cipla each rose over 3%
- Auto: Tata Motors rallied 4.2% on hopes that JLR exports to the US won’t face the feared 25% auto tariff
FII Flows Remain Key
Foreign institutional investors have pulled out over Rs 30,000 crore from Indian equities in March alone, driven by tariff uncertainty and the yen carry trade unwind. However, Thursday saw net FII buying of Rs 1,200 crore — the first positive session in eight trading days.
Market strategists at Kotak Institutional Equities note that the Nifty’s valuation has corrected to 18.5x one-year forward PE from 21x at the September 2024 peak, making India more attractive for FII re-entry once tariff clarity emerges.
What to Watch: April 2 Deadline
The market’s near-term direction hinges entirely on the April 2 tariff announcement. A softer-than-expected outcome could trigger a 5-8% relief rally, while aggressive tariffs could push Nifty toward 22,000. Traders are advised to avoid aggressive positioning until clarity emerges.