On April 7, Indian stock markets faced significant turmoil as fears of a global economic downturn intensified, driven largely by recession anxieties in the United States. The sell-off that began last week, sparked by President Donald Trump’s tariff announcements, continued to reverberate across Asian equities, resulting in steep declines. While the Nifty 50 and Sensex saw drops exceeding 5%, their declines were less severe than many other Asian markets, some of which plummeted over 10%.

Impact on Small-Cap Stocks

The turmoil proved particularly harsh for small-cap stocks, with the Nifty Smallcap 100 index experiencing a staggering 10.14% decline, hitting a 15-month low of 14,084 points. This drop marks the largest intraday fall for this index since June 2024. By 1:00 PM, the index had recovered slightly but still showed a 6% decrease. Notably, all 100 stocks in this index suffered significant losses, with Newgen Software Technologies taking the hardest hit, plunging by 11%. Other notable decliners included Garden Reach Shipbuilders, BEML, Anant Raj, Swan Energy, and Afcons Infrastructure, all of which fell between 8% and 10%.

Investor Sentiment Shaken

Investor confidence was rattled by Trump’s sweeping tariffs, which have raised fears of a global trade war. The U.S. tariffs, at their highest level since 1902, have triggered retaliatory measures from nations like China, further escalating tensions and unsettling global markets.

The Nifty Smallcap 100 index is now down by 29% from its peak in September 2022. After a brief relief in March, the segment’s struggles resumed, as nearly 85 stocks have seen declines ranging from 20% to 62% from their one-year highs. In a striking move last week, Trump imposed a flat 26% tariff on Indian imports, prompting New Delhi to evaluate the implications and potential opportunities arising from this situation.

Foreign Investor Withdrawals

The uncertainty surrounding trade relations has led foreign portfolio investors (FPIs) to withdraw funds from Indian equities, marking a net outflow of over ₹16,543 crore in the past five trading sessions alone. This follows a brief period of optimism in March, when FPIs had shown signs of bullish sentiment after a prolonged selling phase.

Expert Insights on Market Volatility

Amid this heightened volatility, Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, offered insights on navigating this turbulent market. He emphasized the unpredictability of the current situation, advising investors to adopt a “wait and watch” approach.

Dr. Vijayakumar also provided several key points for consideration:

• The irrational nature of Trump’s tariffs is unlikely to persist.
• India’s exports to the U.S. account for only about 2% of its GDP, suggesting limited impact on overall growth.
• Ongoing negotiations for a bilateral trade agreement with the U.S. may lead to reduced tariffs for India.

He highlighted that sectors focused on domestic consumption, such as financials, aviation, hotels, select automobiles, cement, defense, and digital platforms, are likely to withstand the ongoing crisis better than others. Moreover, he noted that the pharmaceutical sector may remain resilient, as Trump’s administration appears to be backtracking on tariffs affecting this critical industry.

In summary, while the Indian stock markets face significant challenges due to external pressures, there are glimmers of hope in certain sectors and strategic negotiations that may mitigate long-term impacts. Investors are encouraged to stay informed and proceed with caution during this period of uncertainty.