- US tariffs severely impacted Indian markets, rupee, and FPI flows.
- Trade deals, court rulings, and conflicts cause continuous market volatility.
- Geopolitics is a permanent core risk for Indian investors.
By Hemant Sood
The last 18 months were a live lesson.
If you invested in Indian equities through 2025 and the first half of 2026, you did not merely experience a market cycle. You experienced a geopolitics cycle. Arguably the dominant macro driver of Indian market sentiment during this period was not corporate earnings, not monetary policy, and not domestic reform. It was a tariff schedule written in Washington. For a generation of investors trained to read balance sheets, this has been an uncomfortable but necessary education.
Consider the sequence. Through 2025, the United States imposed tariffs that eventually reached 50 percent on most Indian goods, combining reciprocal duties with a punitive component linked to India’s Russian crude purchases. The consequences were visible in every portfolio. The rupee fell more than 5.5 percent in 2025, placing it among Asia’s weakest major currencies for the year.
Foreign portfolio investors pulled more than 10 billion dollars out of Indian equities in the first half of 2026. The Nifty 50 and Sensex delivered single digit returns in 2025, well below their five and ten year averages. None of this originated in India. All of it landed on Indian investors.
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Then the pendulum swung, twice.
On February 2, 2026, India and the US announced a trade deal cutting the effective tariff on most Indian goods from 50 percent to 18 percent and removing the 25 percent punitive duty. Markets rallied on expectations of returning foreign flows and rupee stability. Then a US Supreme Court ruling invalidated the underlying tariff framework, forcing both sides back to the negotiating table.
As of mid July 2026, Commerce Secretary Rajesh Agarwal has said the framework deal is ready and negotiations are progressing well, while the US Ambassador to India described talks as being in the last 1 percent. Markets are now watching July 24, when the current 10 percent tariffs are set to expire.
Layer on the Strait of Hormuz conflict, which pushed crude higher and drove the rupee to a record low of 96.84 against the dollar on May 20, 2026, before coordinated RBI and government measures helped it recover. SBI Research estimates around 7 billion dollars of foreign institutional inflows returned after those June measures. In under six months, the same market swung from capitulation to rally to renewed uncertainty, with almost every turn triggered by events outside India’s borders.
Why this decade is structurally different
This is not a passing phase that investors can wait out. The world is moving from globalization to strategic trade. Supply chains are increasingly shaped by national security, sanctions, tariffs and industrial policy rather than pure economics. Decisions that once sat with central banks now sit equally with trade negotiators and foreign ministries. Investors therefore need to monitor finance ministries and foreign ministries with almost equal attention, because both now move asset prices.
How geopolitics actually reaches your portfolio
Tariffs transmit to portfolios through four channels. First, currency: export pressure widens the trade deficit, weakens the rupee, and erodes returns for foreign investors, which accelerates outflows in a self-reinforcing loop. Second, flows: FII selling compresses valuations even in companies with no export exposure at all. Third, sectors: textiles, gems and jewellery, auto components, and pharma carry direct revenue exposure to US demand, while episodes like the 126 percent duty imposed on Indian solar imports in February 2026 show how a single sectoral action can reprice an entire theme overnight. Fourth, commodities: geopolitical conflict moves crude, and crude moves India’s inflation, current account, and rate outlook.
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How tariffs reach your portfolio
The lesson is not to become a geopolitical trader. Trading headlines is a losing game for most retail investors because the market reprices in seconds and reverses on the next headline. The lesson is to build portfolios that survive geopolitical shocks rather than portfolios that depend on their absence.
In practice, that means a few things. Track the policy calendar the way you track the earnings calendar; tariff expiries and trade negotiation milestones now move markets as much as quarterly results. Understand the export intensity of what you own, because a portfolio concentrated in US-facing sectors carries tariff risk whether or not you think of it that way. Keep meaningful allocation to domestic demand stories that earn in rupees and sell to Indians, which acted as a shock absorber through this episode. Hold some gold as geopolitical insurance. And if you use derivatives, size your hedge to actually hedge, not to decorate the portfolio.
The honest caveat
Nobody, including professional desks, can predict how the current negotiations will conclude or what the next shock will be. A signed deal could support a durable re-rating of Indian equities. A breakdown could reopen the 2025 playbook. Both remain possible. What is within your control is preparation: diversification across sectors and assets, discipline on position sizing, and the humility to accept that geopolitics is no longer background noise for Indian investors but a core, permanent risk factor. Capital protection comes before return maximisation. The next decade will reward investors who understand policy as well as profit and geopolitics as well as valuation.
(The author is Founder and Managing Director, Findoc )
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