The era of globalization and peace dividend is over. We are entering a new era of trading and military blocks of countries and bilateral transactional trade agreements. This process may take a couple of years to play out. Expect bouts of market uncertainties during this process as the world adjusts to the new era.
India will likely be a beneficiary in the fall out of the trade war between the world’s largest economies – US and China. Indian Government’s proactive engagement with the new US administration signals its intent to leverage this opportunity.
RBI’s posture of “whatever it takes” is a welcome move that will help Indian economy navigate this uncertain period.
IT services could see weakness from second order impact of this trade war as US businesses postpone large spends. Indian pharma however can possibly expect some carve out on the tariffs front, given the cost sensitivity in US for healthcare.
Indian global commodity players like metals and chemicals will be susceptible to dumping from Asian countries whose access to US may now be limited. We need proactive anti-dumping duties to minimize excesses on this front.
Auto sector can face some challenges from imports due to potentially lower tariffs on US cars and auto component companies which are highly exposed to US will be wary of tariff walls that US is seeking to build around its auto sector.
Domestic focused businesses including the entire banking/ financial services space, cement, select domestic consumption sectors – will all become “safe havens” amidst these global trade uncertainties. While they are currently attractive, one must be watchful about too much crowding into these spaces, which can elevate valuations beyond comfort zone.
Amidst uncertainty, opportunities can arise from extreme valuations in companies/sectors perceived to be most vulnerable. One must maintain an opportunistic stance in these “out-of-favour” sectors.
Expect FPI inflows to resume as DXY continues to weaken –which will augment domestic demand for equity. Sizeable slowdown in IPO supply will likely aid equity markets as demand-supply situation will now become healthier.