NSE Nifty could see higher volatility as market players await trade deal between India and United States. NSE Nifty closed 114 points higher on Tuesday and has closed comfortably higher than psychological 25,000 level. Amid rising economic uncertainty and persistent inflation pressures, global markets are once again reacting to policy shifts from Washington. With U.S. inflation climbing and a renewed tariff threat under President Donald Trump, investors and industries across the globe are watching closely—especially sectors heavily reliant on Western demand, such as India’s IT industry.

U.S. Inflation Rises Above Expectations

The U.S. Consumer Price Index (CPI) for June came in at 2.7% year-on-year, exceeding expectations of 2.6%. This marks the second consecutive month of rising inflation, following 2.4% in May and 2.3% in April. While inflation had steadily declined from the January peak of 3%, this recent reversal has raised concerns that price pressures are re-accelerating.

The inflation uptick is being attributed to several factors, including high interest rates and, more recently, the anticipation of broad tariffs that could significantly increase the cost of imported goods in the U.S. economy.

In a significant development, President Donald Trump has sent a formal letter to U.S. trading partners, declaring August 1, 2025, as the final deadline to negotiate and finalize trade deals. If no agreements are reached, the U.S. will impose:

• 30% tariffs on imports from Mexico and the European Union
• 25% tariffs on imports from Canada

These tariffs are part of a broader protectionist approach aimed at reshaping global trade relationships in favor of U.S. manufacturers. However, such measures also risk inflaming trade tensions, raising input costs for businesses, and further fueling inflation—especially at a time when the Federal Reserve is struggling to bring inflation back under its 2% target.

Tariffs and Inflation: A Direct Connection

As the possibility of new tariffs looms, markets are already factoring in the potential price shocks. Imported goods are likely to become more expensive, and businesses dependent on global supply chains could face serious cost pressures. U.S. consumers are also likely to feel the pinch, as retailers pass on these costs.

In fact, analysts believe the June inflation figure of 2.7% partly reflects these anticipatory pricing effects. If the tariffs take effect as planned, further inflationary spikes in the second half of the year are expected.

With inflation rising and uncertainty about trade outcomes deepening, the Federal Reserve is now in a difficult position. Any hopes of a near-term interest rate cut are fading. Instead, the Fed may be forced to maintain high rates longer than expected to counter new inflationary pressures.

The global trade landscape is again turning volatile. In addition to the potential tariffs on the EU, Mexico, and Canada, the U.S. is also reviewing its trade relationships with several countries:

• India is being closely monitored, with expectations of a bilateral deal under discussion, though no official agreement has been announced.
• The U.S. has a temporary agreement with China, a trade deal in place with Vietnam, and stable relations with the UK.

However, if countries like Mexico or the EU retaliate with counter-tariffs, the situation could spiral into a more intense trade war. For now, all eyes are on August 1, which could become a turning point in global trade and inflation trends.

Indian IT Sector: Caught in the Crossfire

For India, the implications are significant—especially for its IT sector, which derives the bulk of its revenue from Western clients, particularly in the U.S. and Europe. Companies like TCS, Infosys, Wipro, and HCLTech offer premium technology services to Fortune 500 clients, and any slowdown in these economies can ripple back to their business pipelines.

If the tariff war intensifies, the resulting inflation and high interest rates in the West could force companies to:

• Cut back on IT budgets
• Delay digital transformation initiatives
• Pause new contracts and expansions

All of this would hurt Indian IT firms’ margins and growth forecasts.

In fact, the market seems to be already pricing in this risk. Leading Indian IT stocks have corrected nearly 20% from their recent peaks, reflecting investor concerns over reduced demand and tightening global budgets.

The combination of rising inflation, Trump’s aggressive trade policy, and a potential tariff storm starting August 1 creates a highly uncertain environment for global markets.

The Federal Reserve will likely remain cautious, with little room to cut rates unless inflation shows sustained moderation. Meanwhile, export-driven sectors like Indian IT are on high alert, as any decline in demand from Western economies would directly impact their earnings.

With inflation creeping back up and trade tensions heating up, August is shaping up to be a pivotal month. Stakeholders—from policymakers and investors to business leaders and exporters—must stay vigilant and prepare for multiple scenarios as the global economic chessboard shifts once again.