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Key Points

The US tariff hike significantly impacted India's financial conditions in August. Equity markets took the biggest hit with foreign investors pulling out $4 billion. The rupee reached an all-time low against the dollar amid these outflows. However, some positive factors like GST revisions and a sovereign rating upgrade helped limit further decline.

Key Points: US Tariff Hike Hits Indian Equity Markets Hardest Says Crisil

  • US 50% tariff hike caused sharp equity outflows reaching $4 billion in August
  • Rupee hit all-time low of 87.8 against dollar amid FPI pressure
  • Benchmark indices Sensex and Nifty dropped nearly 2% month-on-month
  • Debt segment saw increased inflows reaching five-month high of $1.5 billion
3 min read

US tariff hike weighs on Indian financial conditions, equity takes biggest hit: Crisil

US 50% tariff hike causes sharp FPI outflows, rupee hits record low, and equity markets decline 2% in August according to Crisil's Financial Conditions Index.

"Persistent FPI outflows and nervousness regarding the impact of tariffs led to a decline in equity market performance - Crisil Report"

New Delhi, September 13

The imposition of a 50 per cent tariff hike by the United States (US) on the imports from India weighed on domestic financial conditions in August, with equity markets taking the biggest blow, according to a report by Crisil.

The rating agency said that its Financial Conditions Index (FCI) declined to -0.5 in August from -0.4 in July. The FCI is a monthly indicator that combines parameters across the money, debt, equity and foreign exchange markets.

A lower FCI value indicates financial conditions were tighter than the previous month, while a negative value implies it was tighter than the long-period average (measured since April 2010). That said, the FCI for August remains within thecomfort zone of one standard deviation.

According to the rating agency, net outflows from foreign portfolio investments (FPIs) continued for the third straight month. Persistent FPI outflows and nervousness regarding the impact of tariffs led to a decline in equity market performance, with benchmark indices declining 2 per cent on a month-on-month basis.

Persistent FPI (Foreign Portfolio Investment) outflows and nervousness regarding the impact of tariffs led to a decline in equity markets' performance, with benchmark indices declining 2 per cent on a month-on-month basis, the report added.

FPI outflows also added pressure on the rupee, which reached an all-time low of 87.8 against the dollar in August and weakened 1.6 per cent on a monthly basis.

Highlighting the stressed financial conditions, the report added that FPIs saw net outflows for the third straight month, driven by sharp outflows in the equity segment, while the debt segment saw increased net inflows.

Equity market outflows were on account of the US tariff hike of 50 per cent on India in August. Net outflows in equity rose to USD 4 billion (vs USD 2.1 billion in July), the highest since January.

FPIs net invested USD 1.5 billion compared to USD 0.9 billion in the debt market, a five-month high, driven by softening US yields and crude prices. The 10-year US Treasury yield fell 13basis points (bps) to 4.26 per cent average in August.

According to Crisil, equity markets declined due to the impact of tariffs and continued foreign portfolio investor (FPI) outflows. On average, the S&P BSE Sensex and Nifty 50 dropped 2 per cent and 1.9 per cent month-on-month, respectively.

However, Crisil noted that the proposed revision in GST rates, anticipated boost to consumption, and a long-term sovereign credit rating upgrade for India by S&P Global helped limit a steeper market decline.

Increased FPI outflows led to the rupee depreciating 1.6 per cent on-month, averaging 87.5 per dollar. The currency hit an all-time low of 87.8 on August 29, the report added.

Yield on the benchmark 10-year government security (G-sec) rose sharply, driven by investor concerns on the fiscal impact of the reduction in goods and services tax (GST) rates. Money market rates also rose mildly with moderating surplus liquidity.

- ANI

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Reader Comments

P
Priya S
Not surprising at all. When big economies like US impose tariffs, emerging markets always suffer the most. Hope RBI has some measures to stabilize the rupee. The 87.8 level is really worrying for importers.
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Arjun K
The silver lining is that debt markets saw increased inflows. Maybe time to rebalance portfolios toward fixed income until this volatility settles. Smart investors will use this as buying opportunity for quality stocks.
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Sarah B
As someone working in export sector, this is really bad news. Our competitiveness takes a hit with weaker rupee and now additional tariffs. Government should negotiate better trade terms with US.
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Vikram M
While the situation is challenging, we should remember that Indian economy has strong fundamentals. The GST revision and S&P upgrade mentioned in the article show there are positive factors too. This is temporary phase.
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Michael C
$4 billion outflow in equity is massive! This shows how dependent we are on foreign money. Time to develop stronger domestic institutional investors who won't flee at first sign of trouble.
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Ananya R
The common man suffers the most in these situations. Prices of imported goods will rise, EMIs might increase if RBI hikes rates. Hope the government has a plan to protect middle class from these external shocks.

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