Tariff Relief Sparks Market Calm – Volatility Plunges 17%

“Nobody Is Getting Off The Hook” Tariff Relief Sparks Market Calm: Volatility Plunges 17%

In a dramatic shift that has steadied global markets, India’s Volatility Index (India VIX) plunged by more than 17% on Tuesday, signalling a sharp drop in market uncertainty. This steep fall in volatility followed the U.S. government’s announcement of tariff exemptions for electronics, indicating a potential relaxation of trade tensions and a more secure investment climate.

The positive news triggered a strong rebound in Indian equities, with both the benchmark indices, Sensex and Nifty 50, reporting impressive gains. The Sensex surged by 1,750 points to reach a new high of 76,907.63, while the Nifty 50 rose 2.36%, crossing the 23,360 mark. The market capitalisation of all listed firms on the Bombay Stock Exchange (BSE) increased by a substantial Rs 8.7 lakh crore, reflecting widespread sectoral optimism.

The U.S. Tariff Exemptions and Their Global Impact
The catalyst for this market upturn was the news from U.S. President Donald Trump, who signalled possible tariff relief. Over the weekend, Trump announced that certain electronic products, including smartphones, computers, and other technology items, would be temporarily exempt from the 145% tariffs previously imposed on these Chinese imports. This exemption was welcomed by technology companies, especially those with manufacturing or assembly operations in Asia.

In addition to the exemption of electronics from tariffs, Trump also threatened to temporarily suspend tariffs on auto imports and automotive parts. These moves, meant to provide leeway to automakers to redesign their supply chains, were met with universal welcome by investors, who had been nervous about the general effects of the trade war on the pace of world growth.

Indian Markets React Positively: Key Sectors Lead the Rally
The optimism in the U.S. soon spilled over into Indian markets, which opened sharply higher on Tuesday. The Sensex and Nifty 50’s strong performance was driven by sectoral advances, with automobile stocks leading the charge. Shares in Tata Motors, Mahindra & Mahindra, and other major automakers rose on expectations that tariff relief would lower production costs and boost demand for vehicles.

Technology stocks also recorded significant gains. Given the tariff exemption on electronics, companies like TCS, Infosys, and Wipro—highly exposed to global supply chains—benefited from reduced trade uncertainty. The banking and financial sector also saw a surge, as improved sentiment among investors led to greater confidence in the overall market environment.

Additionally, sectors such as defence and real estate, which had underperformed in recent months, joined the rally, buoyed by the broader market euphoria and the easing of external headwinds.

Strengthening Currency and Global Market Sentiment
The rally in Indian equities mirrored positive movements in global markets. The American stock indices, including the S&P 500 and Dow Jones Industrial Average, closed higher, fuelled by Trump’s tariff announcements and a global shift toward risk-on sentiment. In Asia, markets in Tokyo, Seoul, and Hong Kong followed suit, with the Nikkei 225 gaining almost 1%, and the Hang Seng and KOSPI posting solid gains.

The optimism surrounding global trade relief also supported the Indian rupee, which strengthened by 39 paise against the U.S. dollar to settle at 85.71. The U.S. Dollar Index fell to a three-year low, reflecting global investor sentiment moving towards emerging markets.

Relief, But Not a Resolution: ‘Unfair’ Trade Balances Still in Focus
Despite the temporary calm and renewed optimism, markets remain cautious. Beneath the euphoria, there is a deeper understanding that the relief is tactical, not transformative.
The 17% decline in India’s VIX shows a meaningful decline in market volatility and the withdrawal of near-term investor trust. Nevertheless, the current rally has a deep discomfort below the surface.

Although U.S. tariff exemptions have been an immediate relief, they are seen as generally temporary and conditional, not a complete reversal of protectionist strategy. President Trump made it clear that these actions are not “exceptions” but part of a calculated shift to confront “unfair” trade imbalances. . He has maintained the strategic flexibility currency today – exemption today, but keeping the door open to the future levy based on business partner behavior. In short, no sector or economy is fully “off the hook.”

Global supply chains, particularly in autos and electronics, still face the risk of changing regulatory regimes. The U.S. has also opened new probes into semiconductor and pharmaceutical imports under national security measures—indicating that the era of aggressive trade retooling is hardly over.