Introduction

Most of us who invest in Indian stocks have experienced this at some point.

It is hard to find a specific reason why the market has fallen. Generally, what we get are only vague reasons like ‘global uncertainty’ or ‘FII selling.’

These explanations are not wrong. But I think they are incomplete because they never tell us the real ‘why.’

Over the past three years or so, a chain of events has been playing out quietly behind the scenes.

• It started with the Russia-Ukraine war.
• It then moved into India’s decision to buy cheap Russian oil.
• And that decision eventually triggered US tariffs,
• Which led to FIIs deciding to leave India,
• This led to a domino effect on almost every sector in our market.

In this post, I want to connect all of these pieces for you.

The goal is simple. The next time a news event like this breaks, you should be able to read it and connect the dots yourself.

This way, you’ll also understand how certain news flows affect our stock portfolio.

1. The Russian Oil Trade That Was Quietly Making India Richer

To understand what is happening today in our markets, we need to go back to February 2022.

Back then, when Russia invaded Ukraine, the USA and Europe responded by imposing very heavy economic sanctions on Russia.

The most impactful of these sanctions was on Russian energy. Western countries simply refused to buy Russian oil.

Now think about this from a basic supply-demand perspective.

Russia is one of the largest oil producers in the world. And overnight, a very large share of its buyers had walked away.

When supply stays high, and buyers disappear, the price has to fall.

In this situation, Russia had no choice but to start offering steep discounts. At that time, the discount was sometimes as much as $10-$15 per barrel below international market prices.

Anyone who was willing to buy the Russian oil could have done so at about 25% discount.

This was the point when India stepped in and decided to buy the discounted Russian oil.

This was, in my view, a very practical decision. India imports nearly 85% of its crude oil requirement. We are the world’s third-largest oil consumer. At a time when global oil prices were already elevated, getting access to Russian crude at a meaningful discount was a significant economic relief.

We were not helping any war effort. We were managing our own energy costs and protecting our own economy.

Let me give you a simple example to understand the financial impact.

• Imagine you own a small petrol pump. You somehow get access to petrol at Rs. 80 per litre, while every other pump in your area is paying Rs. 90. But you can sell at the same price as everyone else. Your margin on every litre just went up by Rs. 10.

Now, scale that up to a business that processes millions of barrels of crude oil every year, and you begin to understand what happened to our public sector oil refiners. At that time, our PSU refineries like BPCL, HPCL, and Indian Oil Corporation made huge profits.

These PSU refiners were buying Russian crude at a discount, refining it into petrol, diesel, and jet fuel, and selling those products at prevailing international prices.

The difference went straight to their bottom line.

As a result, between October 2023 and September 2024, HPCL and IOCL stocks rose by almost 175% in a span of barely ten to eleven months.

By 2024, India’s imports of Russian crude had gone from almost nothing before 2022 to over 35% of our total oil imports.

We had become one of Russia’s most important customers. The arrangement was benefiting us, and it was benefiting our refinery stocks.

But as with most things in geopolitics, there was a price to be paid for it. That price came in the form of American tariffs.

2. Trump Tariff

When Donald Trump returned as the US President in 2025, one of his key foreign policy goals was to broker a peace deal between Russia and Ukraine.

As part of that effort, he wanted to cut off the financial lifelines that were allowing Russia to sustain its war effort.

Oil revenue was one of the biggest of those lifelines.

The problem was that China and India were both buying Russian oil in large quantities. Despite all the Western sanctions, Russia was not short of buyers.

Trump decided to use tariffs as a pressure tool. He was essentially threatening to make it economically painful for countries that continued buying Russian oil.

Before we get into what he did specifically to India, let me quickly explain how tariffs work, because this is central to understanding everything that happened next in our stock market.

• A tariff is simply a tax that one government puts on goods arriving from another country.
• If India exports pharmaceutical drugs worth Rs. 100 crore to the US, and the US adds a 20% tariff, the American importer now has to pay an additional 20% on those goods.
• That extra cost either gets passed on to the American buyer, making Indian goods more expensive and less competitive, or the Indian exporter has to absorb it by reducing their price, which squeezes their margins.
• Either way, Indian exporters are hurt.

The US imposed a 25% reciprocal tariff on India plus an additional 25% punitive tariff specifically for India’s Russian oil purchases. That took the combined tariff to 50% on a wide range of Indian goods.

A 50% tariff is not a small thing when you consider that the US takes in nearly $85-90 billion worth of Indian exports every year. It is our single largest export destination.

Sectors that were directly in the line of fire of these high-tariffs were:

• Textiles,
• Gems and jewellery,
• Chemicals, and
• Manufactured goods, etc.

Now, here is what connects this directly to your portfolio.

When the US imposed these tariffs, foreign institutional investors (FIIs) started pulling money out. In 2025, India saw some of the largest FII outflows after COVID.

When FIIs sell, they do not just sell the stocks of the companies that are directly affected by tariffs. They sell across the board. They reduce their overall India allocation.

That is why, during that period, you saw corrections in stocks that had nothing to do with exports — HDFC Bank, ICICI Bank, Nestle, Britannia, Reliance, IT companies.

The FII exodus was like a blanket effect across the Indian stock market.

Many investors at the time assumed the selling was about stretched valuations or global risk. And yes, those were contributing factors. But the deeper driver was the structural uncertainty created by the tariff situation.

3. The US-India Trade Deal

In early 2026, India and the US announced a trade deal. The key terms were straightforward.

On the American side:

• The reciprocal tariff on Indian goods was reduced from 25% to 18%.
• The additional 25% punitive tariff linked to Russian oil purchases was also removed entirely.

On the Indian side:

• India agreed to stop its purchase of Russian crude.
• India also pledged to buy $500 billion worth of American goods over five years.

To understand how big is $500 billion in for India: India’s total crude oil import bill in FY24 was roughly $130 billion. So the commitment India made to the US was a substantial one.

The deal came at a time when the India-EU free trade agreement was also announced.

Combined, these two deals opened up access to the world’s two largest consumer markets on more competitive terms than India had enjoyed in a long time.

I want to be clear about something here.

I am not going to take a political position on whether these deals were good or bad for India. That is a genuinely complex question.

• Some serious economists argue that India gave away too much, particularly on agriculture (I guess).
• There are others who say that the tariff relief and market access more than compensate for what India conceded.
• Both sides have valid points, and it is not a simple calculation.

What I do want to focus on is what these deals could have meant for Indian investors. What they meant for specific sectors.

Because unfortunately, just as this deal was settling and some positivity was returning to Indian markets, the US-Iran conflict escalated significantly. That added a new layer of uncertainty and pushed portfolios back into the red.

I will still talk about the sector impact of the trade deal, because understanding the logic is valuable regardless of anything.

4. The FII vs Domestic Investor Battle

While all of this geopolitical turbulence was playing out, foreign investors were selling Indian equities like never before.

On some days, FII outflows crossed Rs. 10,000 crore in a single session. In 2025, the cumulative outflows were among the largest India had seen in years.

And yet, the market did not crash the way it did in 2008 or in March 2020.

That is not an accident. Something had structurally changed in the Indian market. I think it deserves more attention than it usually gets.

The reason the market held up reasonably well was domestic institutional investors(DIIs). This category includes the following:

• Indian mutual funds,
• Insurance companies like LIC, and
• Pension funds like EPFO.

These institutions were consistently buying during the very same period that FIIs were selling.

Now, where does this DII money come from?

• A very large portion comes from SIPs — systematic investment plans.
• Every single month, millions of Indian households put in their Rs. 2,000, Rs. 5,000, Rs. 10,000 into mutual funds through SIPs.
• Those mutual funds then deploy that money into the stock market.
• Every SIP installment that you made during 2025 and 2026 was going in to buy stocks that FIIs and other investors were selling.

In a very real sense, the Indian retail investor, through their SIPs, was one of the forces that prevented the market from collapsing during this period of heavy FII selling.

I think the significance of this is beyond just the feel-good aspect. It tells us something important about the structural maturity of Indian markets.

A few years ago, if FIIs decided to exit India in large numbers, our markets would fall sharply and recover slowly. That dynamic has changed. The domestic investor base is now large enough to serve as a genuine counterweight to FII mood swings.

For long-term investors, this has a practical implication.

The downside risk of a catastrophic market crash purely driven by FII exits is meaningfully lower today than it was five or ten years ago. This does not mean our market cannot fall. It absolutely can, and it will at times. But the floor is more solid now. And that makes Indian equities a more dependable long-term asset than they were before.

5. How These Events Affected Your Portfolio — Sector by Sector

How do these geopolitical developments actually translate into outcomes for specific sectors and companies in India?

Let’s discuss that as well:

5.1 Pharmaceuticals

The Indian pharmaceutical sector was largely protected from the US tariffs.

The American healthcare system is structurally dependent on Indian generic medicines. American patients rely on affordable Indian generics.

If the US were to put heavy tariffs on Indian pharma, it would immediately make those medicines more expensive for ordinary American consumers. That is a political problem no administration wants to create at home.

So companies like Sun Pharmaceuticals, Cipla, and Dr. Reddy’s Laboratories were relatively insulated from the tariff pressure that hurt other export sectors. Their US business continued largely without disruption.

And now, with the EU free trade agreement in place, Indian pharma companies have a new and significant opportunity.

The EU is also a large, mature, well-regulated market like the US.

Getting products approved and accepted there requires serious investment in quality and compliance. But once you are in, the revenue is stable, and the margins are comparable to what companies earn from the US market.

Those companies that are already approved by the US FDA would find it easy to get European EMA approvals.

From an investment standpoint, quality pharma names are now worth considering as a long-term bet.

5.2 Textiles, Gems and Jewellery

India’s tariff rate on exports to the US came down to 18% after the trade deal.

On its own, 18% is not a low number. But in investing and trade, context matters a lot. Let us look at what tariff some of India’s main competitors pay.

• China faces tariffs of 27% and above on many product categories.
• Vietnam, which became a major manufacturing hub after companies started moving out of China, faces around 16%.
• Bangladesh sits at roughly 20%.

So relative to these alternatives, India’s 18% is a reasonably competitive position, not the cheapest, but not uncompetitive either.

For Indian textile companies with established relationships with American retail buyers, there is a real possibility of incremental order flow shifting towards India.

Companies in textiles with strong operational quality, established export relationships, and capacity to scale are the ones worth watching in this environment.

The gems and jewellery sector follows a similar logic. India is the world’s largest centre for cutting and polishing diamonds. A stable tariff framework with the US gives these businesses more confidence to plan.

5.3 Defence

The defence sector is where I think the geopolitical story is playing a stronger part, from an investment point of view.

Two distinct forces are pushing this sector forward simultaneously, and they reinforce each other.

• The first is the shift in India’s strategic alignment. A closer India-US relationship carries an implicit expectation. India will gradually move away from Russian defence equipment and platforms. That transition creates immediate demand, either for American defence equipment imports or for domestically manufactured alternatives.
• The second force is India’s own stated policy of Atmanirbhar Bharat in defence.

Both of these forces point in the same direction: Indian defence companies get more business.

Companies like HAL, BEL, Cochin Shipyard, and Mazagon Dock are in this space.

These are businesses where government procurement drives revenue, so the order books tend to be long, the contracts are large, and the visibility on future revenues is higher than in most sectors. That is genuinely attractive from an investment perspective.

I do want to add one important caution here, though.

Several defence stocks are currently trading at very high PE multiples. The market has recognised this story and has priced in a lot of the future growth already.

That does not make these companies bad investments, but it does mean that valuations need to be assessed very carefully before committing capital.

5.4 Information Technology

India’s large IT services companies like TCS, Infosys, Wipro, HCL Tech, etc are not directly threatened by the tariffs. Services are taxed differently.

There is also a deep relationship our Indian companies have with American corporations. Hence, it is not easily disrupted by political changes.

A more cooperative India-US relationship provides a supportive backdrop for these companies.

Indian IT firms are deeply embedded in the technology operations of American banks, insurance companies, retailers, and manufacturers. The $500 billion import commitment India made to the US will likely include significant technology components. Indian IT companies will manage many of those systems.

I would not call IT the most exciting story in this geopolitical context. It is not as direct a beneficiary as pharma or defence. But it is a sector where the India-US relationship provides a stable floor.

I think the long-term demand for Indian tech talent remains structurally strong.

5.5 PSU Refiners

This is the sector where I want to be most direct. People who are still holding BPCL, HPCL, or Indian Oil stocks should read this section more closely.

The extraordinary profitability that these companies enjoyed between 2022 and 2024 was built on one thing: cheap Russian crude.

That crude came at a discount of ten to fifteen dollars per barrel below market prices. When you multiply that discount across millions of barrels per month, the impact on margins is very large.

The stock price performance of HPCL and IOCL, which I mentioned earlier, rose by 175% in about ten months.

Those kinds of profitability levels for our refineries are now gone.

• India’s commitment under the trade deal was to stop buying Russian crude. Even if India were to resume some Russian oil purchases at a later stage, it will not be the same. Russia is no longer as desperate for buyers as it was in 2022. The discount on Russian crude has already narrowed a lot.
• Our PSUs are now sourcing crude at market prices from the Middle East, the US, and other suppliers. Their input costs go up. Their refining margins will fall. Their profitability will now fall to something closer to historical averages.

This does not make them bad companies. But if you are holding them because of the thesis that made sense in 2022, that thesis no longer applies.

There is another practical point worth noting. The high dividend payouts that some of these PSUs were making during the high-margin period were partly a function of the unusually strong earnings. With margins falling, dividend yields could also compress.

5.6 Agriculture

Agriculture is the sector where I have the least certainty.

One of the long-standing demands from the US in any trade negotiation with India has been access to the Indian agricultural market.

• Specifically, they have pushed for lower import tariffs on American farm products
• They also want relaxation of restrictions on certain seeds and crop varieties, including genetically modified crops.

India has historically resisted this. Agriculture in India is not just an economic sector; it employs a very large share of our working population. It is tied deeply to rural livelihoods, food security, and political stability. Opening this market to American farm products could displace Indian farmers in ways that would be economically and socially very painful.

The pressure on this sector is there; there is no doubt about it. Once the details of the deal come out, the matter will become clearer.

For companies operating in agricultural inputs, pesticides, seeds, and agrochemicals, the policy environment carries meaningful uncertainty. A regulatory change, an import liberalisation, or a shift in government policy could alter the competitive dynamics of this sector quite suddenly.

I am not saying that investors should avoid agri-input companies entirely.

Some of them have strong businesses and real competitive advantages. But this is a sector where geopolitical and policy risk are high.

Conclusion

Geopolitics and stock markets have become far more intertwined than they used to be.

This does not mean you need to become a geopolitical analyst. It means you need to develop a habit of asking one simple question when you read a big news event:

• What is the chain of consequences from this event?
• Does that chain affect any company I own?

Sometimes the answer will be no. Sometimes it will be very relevant.

The practical takeaways from this particular episode are straightforward.

• Stay with quality companies that have genuine competitive advantages. Such companies can weather geopolitical storms better than weaker businesses.
• Maintain discipline with your SIP regardless of short-term market conditions. Consistency is actually part of what holds the market together during turbulent periods.
• You must also always understand the reason you own a stock. This is necessary because when the underlying reason changes, as it did for PSU refiners, you can reassess quickly rather than holding on out of habit.

They are investors who can understand the connective tissue between world events and their investments well enough to avoid the big mistakes.

I think this is the skill worth building.