India ETFs Fall as U.S.-India Trade Tensions Rise

For capital markets, the issue is bigger than one misread statement. India has been trying to widen its trade links, including deals and negotiations with partners outside the U.S., precisely because it wants to reduce dependence on any single market. That diversification push may prove crucial if Washington’s posture hardens. For investors, the key question is whether India’s growth story can keep compounding if higher trade barriers or diplomatic uncertainty start to bite into manufacturing, exports and foreign inflows.

The technical picture underscores that caution. INDA’s relative strength index was 30.9 on Sept. 25, near oversold territory, while EPI’s RSI stood at 31.5. Both funds remain below their 200-day moving averages, a sign the market is still in a corrective phase rather than a renewed uptrend. Even the India-focused INDY ETF, at $41.92, sits beneath both its 50-day and 200-day averages. That tells you positioning has turned defensive, not because India’s long-term story has broken, but because the market is demanding a clearer policy catalyst before re-rating the sector.

The broader macro backdrop does not help. Adalytica’s U.S. dollar trade signal shows neutral sentiment but extreme fear in awareness, a combination that often accompanies abrupt shifts in global risk appetite. At the same time, Adalytica’s China growth-target sentiment has slumped to extreme fear, reinforcing the view that investors are juggling slowing Asian growth, geopolitical uncertainty and trade fragmentation all at once. In that environment, India is still one of the cleaner structural growth stories, but it is no longer being treated as immune from geopolitics.

That is why the narrative matters for investors: if the market is overreacting to an old remark and underestimating India’s ability to diversify trade, the selloff could create an entry point in high-quality India exposure. But if the rhetoric is a precursor to tougher tariff or energy negotiations, the downside in India ETFs could persist until policymakers provide more clarity. I believe the better strategy is to watch for a policy-driven capitulation in India-linked funds and position for the longer secular trend, not the latest headline noise.