An Empirical Study on the Impact of US Tariff Rates 2025 on the Indian Stock Market
S. Gautami *
Department of Management Studies, S.V. College of Engineering, Tirupati, India.
*Author to whom correspondence should be addressed.
Abstract
Background: The 2025 tariffs provide a timely opportunity to observe how modern financial markets respond to abrupt policy shifts. Prior research shows that uncertainty surrounding tariff announcements can swiftly affect asset prices. By tracing drivers such as uncertainty spikes and earnings revisions, the study clarifies the dynamics at play. Institutional and retail responses are contrasted, and practical recommendations for investors, asset managers, and policymakers are proposed to mitigate turbulence linked to trade policy.
Aim: The present study examines the short- and medium-term impacts of U.S. tariff rate changes in 2025 on the Indian stock market, with particular emphasis on abnormal returns, volatility dynamics, and sectoral heterogeneity.
Study Design: The study adopts an empirical research design using event study methodology combined with GARCH-based volatility analysis.
Place and Duration of the Study: The study focuses on the Indian stock market, analysing major indices and sectoral indices during the 2025 U.S. tariff announcement period.
Methodology: Daily stock index data from [DATE RANGE] were analysed using event study methodology with multiple event windows (±1, ±3, ±5 days) and GARCH (1,1) models to assess cumulative abnormal returns (CARs) and conditional volatility effects around tariff announcement dates. Daily closing prices for the Sensex, Nifty 50, and major sectoral indices were analysed over event windows centred on the tariff announcements (7-, 15-, and 30-day windows). Volatility measures and abnormal returns were calculated relative to pre-event benchmarks. A comparative analysis across sectors allowed the isolation of differential tariff sensitivities.
Results: The findings reveal statistically significant negative cumulative abnormal returns (ranging from −1.42% to −1.85% in the (−1, +1) window) and heightened conditional volatility during tariff announcement periods, particularly in export-oriented sectors (textiles, automobiles, metals). In contrast, pharmaceuticals and IT services exhibited statistically insignificant abnormal returns, reflecting tariff exemptions and service-oriented revenue models. Sector-wise results further highlight the asymmetric effects of tariffs. Export-oriented industries like textiles, automobiles, and metals were more affected, reflecting their greater reliance on the US market. Conversely, pharmaceuticals and IT services showed resilience owing to partial tariff exemptions, strong domestic demand, and service-focused revenue models. This evidence supports previous findings that a sector's exposure influences its sensitivity to trade policy shocks.
Conclusion: The study underscores the asymmetric nature of trade policy impacts on emerging market equities, where sectoral exposure plays a decisive role in shaping return and volatility responses. While the Indian stock market displayed a degree of resilience due to its domestically driven economic base, export-dependent industries remained particularly vulnerable to unilateral trade actions by major trading partners.
Keywords: US Tariffs, Indian stock market, event study, trade policy, market volatility