Stock Market Dropped On February 21; Is Trump's New Tariff Threat The Reason Why Sensex, Nifty Falling?

Indian stock market traded lower on Friday, February 21, after fresh threats of new tariffs by Donald Trump. Meanwhile, FIIs' relentless selling has further dragged the market. Sensex has slipped below 75,500 levels, while Nifty 50 is struggling around 22,820 levels. Auto, banking, FMCG, private banks, healthcare and financial stocks were major draggers so far.

Sensex opened gap-down to 75,612.61 and further slipped by 279.5 points to hit an intraday low of 75,735.96. Further, Nifty 50 opened at 22,857.20 and touched an intraday low of 98.55 to touch an intraday low of 22,814.60. Both the benchmarks traded near their day's low.

Bank Nifty slipped by 377 points, while the Nifty Auto index emerged as the top loser with a decline of nearly 2%. Nifty Pharma and Nifty Healthcare tumbled more than 1%. Nifty FMCG and Nifty Private Bank were also down 1%.

Stocks like Hindalco, Eicher Motors, NTPC, Shriram Finance, and Tata Steel were top gainers, while stocks like M&M, Dr Reddy's Lab, Ultratech Cement, Grasim, and Kotak Bank were top bears.

The auto and pharma stocks took a massive hit after Donald Trump threatened to impose new tariffs, as much as 25%, on auto imports coupled with semiconductors and pharmaceuticals shipped that are shipped to the USA. The new tariff is reportedly said to be in effect from April 2.

Why Market Is Falling?

Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, in the context of Trump's tariff threats the market is negatively responding to potential tariff targets like autos and pharmaceuticals and looking for opportunities in domestic consumption plays which will not be impacted by tariff threats. This is likely to be a short-term trend since Trump's strategy is to threaten with tariffs and then negotiate for tariff reduction on US exports. It will take time for this to play out.

Further, Vijayakumar explained that higher tariffs on imports into the US is not in the interest of the US since it will be inflationary, inviting hawkish comments from the Fed, which, in turn, will impact the US stock market. Trump will not like this outcome and, therefore, he is using the interim period to negotiate with trading partners.

Additionally, the analyst added, "The FII selling in India is likely to continue, particularly in the context of renewed interest in Chinese stocks which are cheap and are staging a smart recovery. FII selling will continue to put pressure on largecaps."

Lastly, Vijayakumar said, "This is an opportunity for long-term investors. Select midcaps like in the defence sector which have corrected and are fairly valued now are likely to witness buying since they don't face the threat of FII selling."