INDIA STOCKS-Indian shares trim losses as investors see US tariff threat as bargaining chip

By Bharath Rajeswaran and Vivek Kumar M

July 31 (Reuters) - Indian benchmark stock indexes trimmed losses on Thursday, recovering from a sharp drop in early trade, as investors viewed the U.S. tariff threat as a pressure tactic and hoped for lower rates once negotiations conclude.

The Nifty 50 .NSEI fell 0.35% to 24,768.35 points and the BSE Sensex .BSESN lost 0.36% to 81,185.58.

The benchmarks fell nearly 1% in morning trade after U.S. President Donald Trump announced 25% tariffs on India, along with an unspecified penalty, from August 1, and added that the U.S. is still negotiating with the Asian country on trade.

Pankaj Pandey, head of retail research at ICICI Securities, said the initial market reaction was knee-jerk.

The intraday recovery indicates that the "market is thinking of this as a pressure tactic. Something similar happened with South Korea, which reached a deal with the U.S. today at much lower 15% tariffs", he said.

Nomura too said the elevated tariffs were unlikely to be permanent, and that the best-case outcome would be tariffs in the range of 15%-20%.

Fourteen of the 16 major sectors ended lower on the day.

The broader mid-caps .NIFMDCP100 and small-caps .NIFSMCP100 lost about 1% each.

For the month, the benchmark indexes fell about 3% each, and the broader market underperformed, on persistent selling by foreign investors and as investors digested lacklustre earnings from IT companies and most financials.

Textile manufacturers such as Welspun Living WLSP.NS, Vardhman Textiles VART.NS, KPR Mills KPRM.NS and Gokaldas Exports GOKL.NS lost between 3.2% and 5.1% on the day, and were the worst hit by Trump's tariff threat.

Adani Enterprises ADEL.NS lost 4% after posting a drop in first-quarter profit due to weak coal demand.

Consumer goods .NIFTYFMCG sector jumped 1.4% and was the biggest sectoral gainer, led by heavyweight Hindustan Unilever HLL.NS. The company added 3.4% after rural demand recovery and portfolio revamp supported its first quarter earnings.

Graphite electrode maker HEG HEGL.NS gained 7.3% after posting a multi-fold jump in first-quarter profit.