One Statement by US Treasury Secretary Sparks Indian Stock Surge: What Happened with the Tariffs?
On September 2, 2025, a single statement from US Treasury Secretary Scott Bessent sent Indian stock markets soaring, particularly in sectors like pharmaceuticals, IT, and FMCG. Speaking at a Washington press briefing, Bessent hinted at a potential softening of the punitive 50% tariffs imposed on Indian goods, stating, “The US is open to revisiting tariff structures with strategic partners like India, provided trade talks progress constructively.” This unexpected olive branch, reported by Reuters and Bloomberg, fueled optimism among investors, reversing weeks of bearish sentiment caused by escalating US-India trade tensions. This blog explores the tariff saga, the market’s reaction, and the implications for India’s economy, drawing from recent reports and market analysis.
The Tariff Backstory: A Trade War Looms
The US-India trade relationship, valued at $186 billion in 2024-25, hit turbulence in July 2025 when President Donald Trump imposed a 25% tariff on Indian goods, citing India’s high tariffs on US imports and its continued purchase of Russian oil. On August 6, Trump doubled down, adding a 25% “penalty” tariff, bringing the total to 50%—among the highest for any US trading partner. Effective from August 27, 2025, these tariffs targeted key Indian exports like textiles, gems, jewelry, and chemicals, threatening $60.2 billion (55% of India’s $87.3 billion exports to the US). Economists warned of a potential 0.3-0.5% GDP reduction and a 70% drop in affected sectors’ exports.
Indian markets initially slumped, with the Nifty 50 and BSE Sensex logging their worst session in three months on August 26, 2025, as the rupee hit a three-week low. Sectors like textiles and jewelry faced immediate order cancellations, with exporters losing ground to competitors like Bangladesh and Vietnam. India’s Ministry of External Affairs called the tariffs “unfair, unjustified, and unreasonable,” while Finance Minister Nirmala Sitharaman assured exporters of government support, including GST reforms and low-interest loans.
The Game-Changer: Bessent’s Statement
Bessent’s September 2 statement shifted the narrative. His acknowledgment of India as a “strategic partner” and openness to tariff renegotiation signaled a possible de-escalation. Investors interpreted this as a window for trade talks, especially with Prime Minister Narendra Modi’s planned US visit for the UN General Assembly (September 23-29, 2025), where a meeting with Trump is expected. The prospect of a trade deal, potentially lowering tariffs to 15-20%, sparked a rally in Indian shares.
On September 3, 2025, the Nifty 50 surged 1.8% to 24,998.45 points, and the BSE Sensex climbed 1.6% to 81,714.36, driven by gains in tariff-exempt sectors. The Nifty Pharma index soared 3.2%, with companies like Sun Pharma and Cipla gaining 4-5% due to their exemption from tariffs. IT stocks, such as Infosys and TCS, rose 2-3%, bolstered by their limited US tariff exposure and strong service sector demand. FMCG stocks like Hindustan Unilever also gained 2%, reflecting resilient domestic consumption. Small- and mid-cap indices outperformed, each up 2.5%, as investors bet on India’s economic resilience.
Why the Market Reacted
Several factors amplified the market’s response:
- Tariff Relief Hopes: Bessent’s statement suggested a 21-day window before the 50% tariffs fully take effect, offering room for diplomacy. India’s push for a free trade agreement and its 120% increase in US oil imports since February 2025 were seen as positive signals.
- Sectoral Resilience: Exemptions for pharmaceuticals, semiconductors, and energy sectors (worth $27.6 billion) protected key players, boosting investor confidence.
- Domestic Cushions: India’s GST rate cuts (to 5% or 18% for essentials) and RBI’s recent rate cuts fueled optimism about domestic consumption, offsetting export losses.
- FII Reversal: Foreign institutional investors (FIIs), who had sold off heavily amid tariff fears, showed signs of returning, with the FII long-short ratio improving from 10:90 to 30:70, per market analysts on X.
Affected Sectors and Market Dynamics
While the rally was broad-based, tariff-affected sectors like textiles and jewelry remained under pressure, with companies like Titan and Rajesh Exports gaining modestly (0.5-1%) due to domestic demand but facing export challenges. Conversely, tariff-exempt sectors led the charge:
- Pharmaceuticals: Exemptions ensured continued US demand for generics, driving stocks like Dr. Reddy’s up 4%.
- IT Services: With 40% of India-US trade in services, IT firms benefited from stable demand and a weaker rupee.
- FMCG: Domestic-focused firms like ITC saw gains as GST reforms promised lower prices and higher consumption.
Analysts like Vinay Jaising of JM Financial noted that India’s “Finsumption” (finance + consumption) and “Make in India” themes, including pharmaceuticals and capex-driven sectors, remain attractive despite tariff headwinds.
India’s Response and Future Outlook
India has adopted a multi-pronged strategy:
- Diplomacy: Modi’s UNGA visit and ongoing talks (sixth round scheduled for late September) aim to secure a trade deal. Commerce Minister Piyush Goyal emphasized India’s readiness for a free trade agreement without compromising on agriculture and MSMEs.
- Diversification: India is targeting new markets (e.g., UK, EU) and boosting domestic consumption via GST reforms.
- Defiance: External Affairs Minister S. Jaishankar defended India’s Russian oil purchases, stating, “If you have a problem buying oil or refined products from India, don’t buy it,” signaling resilience.
Moody’s predicts a 0.3% GDP hit for FY 2025-26, but India’s services sector and domestic demand are expected to cushion the impact. Goldman Sachs warned of a potential drop below 6% growth if tariffs persist, but Bessent’s statement has renewed hopes of a resolution.
Conclusion
US Treasury Secretary Scott Bessent’s September 2, 2025, statement hinting at tariff relief ignited a rally in Indian shares, particularly in pharmaceuticals, IT, and FMCG, as investors bet on renewed US-India trade talks. While the 50% tariffs, effective August 27, pose significant challenges, India’s diplomatic push, domestic reforms, and tariff exemptions for key sectors provide a buffer. As Modi prepares to meet Trump at the UNGA, the coming weeks will be critical for India’s export-driven economy. Stay updated via trusted sources like Reuters or The Economic Times for the latest on this evolving trade saga.
