Short-Term Effects of USA Tariff Announcements on the Volatility of Indian Stock Market Returns: Empirical Evidence from Market and Sectoral Indices
Naveen Linda
Department of Economics, Babasaheb Bhimrao Ambedkar University, Lucknow, India.
Ankit Kanojia
Department of Economics, Babasaheb Bhimrao Ambedkar University, Lucknow, India.
N.M.P Verma *
Centre for Sustainable Agriculture and Environment, PHSSFSS, Lucknow, India.
*Author to whom correspondence should be addressed.
Abstract
Aims: This study aims to investigate the immediate effects of U.S.A. tariff announcements on the volatility of sectoral indices in the Indian stock market. It seeks to analyse how different sectors respond to external policy shocks and to understand market behaviour during these periods.
Study Design: The study employs a short-window event analysis to assess sector-specific market responses preceding and following the U.S. tariff announcement on April 2, 2025.
Data and Methodology: The study examines the daily closing prices of the Nifty 50 and major sectoral indices (e.g., FMCG, IT, PSU Banks, Automobiles, Metals, Pharmaceuticals) over 7-day, 15-day, and 30-day event windows. It evaluates volatility patterns using statistical methods, including Levene’s and Brown–Forsythe tests, to assess variance equality between pre- and post-announcement periods.
Results: The results demonstrate varied reactions across sectors. Export-oriented industries, including Automobiles, Metals, and Pharmaceuticals, had significant short-term instability, whilst FMCG, IT, and PSU Banks exhibited less impact. Volatility surges were particularly evident in the initial 7–15 days following the announcement, progressively stabilising by day 30. These findings align with financial theories such as the Efficient Market Hypothesis, Policy Uncertainty Theory, and Uncertainty Shock Theory.
Conclusion: U.S. trade policy announcements significantly affect the Indian stock market through both economic fundamentals and behavioural investor responses. Investors should adopt short-term risk mitigation strategies, while policymakers are advised to enhance market safeguards and promote sectoral resilience through export diversification and demand stabilisation.
Keywords: Short-term volatility, stock market volatility, U.S.A tariff, Indian sectoral indices, Levene’s and Brown–Forsythe test