While many experts are cautioning us on first and second order impacts on our markets from the US-China trade war, Manish strikes a more optimistic note, asking us to shed our defensiveness and get more constructive on equity markets.
The US bond market has drawn its “Lakshman Rekha” of sorts – each time the US 10 yr threatens to run up beyond 4.5%, the US Government seems to be acting to cool it down by announcing some relaxations in its tariff measures. We have perhaps now left behind the point of maximum damage from tariffs.
Whenever the dust settles on the US-China trade war, Manish expects US tariff differentials between those levied on China and India to be at least 30-40%.
This tariff arbitrage in an environment of low energy prices and a falling USD which reduces cost of capital globally sets up a very promising environment for renaissance in Indian manufacturing exports across multiple sectors including pharma, chemicals, textiles, electricals etc.
Some sectors like auto will be vulnerable to competition from imports. Be careful on sectors that have enjoyed high import duty protection over the years.
Rather than being cautious at a market level, it’s wise to become constructive on sectors that will likely come out on top from this trade war between the world’s largest economies.