Markets have seemingly entered choppy waters since October 2024, leaving a lot of investors witnessing their portfolios underperform. Major benchmark indices including the BSE Sensex and the Nifty 50 tumbled over 16% from their September 2024 peak. Mid and Small caps too witnessed drawdowns of over 22% during this period. This has left a lot of investors who chose to ride the small and mid-cap wave last financial year into thinking about pausing or stopping their SIP’s. Irrespective of whether this downturn is termed as a correction or a slowdown, the drivers of the drawdowns largely point to external macro factors.
The world is going through one thought at a time, and this time, we’re questioning a decision that could break it apart, or maybe not.
While the most urgent question in politics revolves around Trump’s capabilities as a self-proclaimed radical, India has more serious thinking to do. America’s 26% reciprocal tariff on Indian goods, could put a spanner in the works to India’s ambitious economic agenda. This is despite India reducing tariffs on certain products like motorbikes and agreeing to buy more of American oil, gas & arms and Indian telecom operators signing a deal to bring Musk’s Starlink services to India. But here’s the deal, India has always levied a high tariff on American products since its independence. Sectors that could face the heat include seafood, gems & jewelry and export of locally assembled electronics, which only account for about 20% of our exports to the US.
The indirect impact of tariffs could come in the form of slower growth owing to a slowdown in demand for Indian goods, especially considering that Trump’s tariff measures will likely lead the US economy into further slowdown. A long trade war could impact India’s exports. Apart from India, this could break China’s plans of trade dominance and has in turn prompted China to impose retaliatory measures against the US. This is despite the massive fall in the Chinese markets, as they witness tariff fallout spreads.
Geopolitical tensions and protectionist measures have exposed weaknesses in global supply chains. The increased dependence on technology has led to cyberattacks becoming more frequent and severe, presenting a new frontier for global attacks in the form of cyber warfare. Conflicts, such as the Russia-Ukraine war and the Israel-Hamas war, fuel regional instability and have impacted energy and food security, with higher prices leading to increased inflation. Global oil prices have been plummeting, thus leading to a significant fall in Ural oil. In March alone, revenue from the sector fell by over 17%. Trump’s zimbo around US tariffs have led to a ripple effect that could impact the global economy if continued over the long term.
Overall, we think that conceding too much ground to the US could lead to negative implications for India. At the same time, introducing countermeasures could lead to higher tariff rates in the next round of calculations. Increasing imports to the US could help India reduce reciprocal tariffs. Moreover, the resilience of the domestic economy continues to protect it from the shock which we expect will ease by the end of Q2 FY 2025-26. RBI’s comfort as far as food inflation is concerned, and a resultant rate cut in April 2025 will boost local consumption and demand.
A lot remains to be seen as the story continues to unfold. The time now, is to remain patient.
