With the benchmark equity index erasing all the losses triggered by US President Donald Trump’s reciprocal tariffs earlier this month, Indian stocks rallied as trading resumed after a long weekend. Furthermore, the NSE Nifty 50 Index witnessed an upsurge as much as 2.4 percent in Mumbai this Tuesday. With this, it surpassed its closing level on April 2. Due to this, India became the first major equity market globally to erase the tariff-driven losses. Also, since the tariff announcements, a broader gauge of Asian equities is still down more than 3 percent.
Indian markets have so to say become a safe haven for investors amidst the volatility sparked by US President Donald Trump’s reciprocal tariffs. Furthermore, India has a colossal domestic economy, enabling the country to withstand a potential global recession better than many other peers who are facing higher tariffs.
Adding to this, with the intensifying Sino-American trade war, it has shone a spotlight on India as an alternative manufacturing hub to China. New Delhi has struck a conciliatory tone and sought to reach a provisional trade deal with the Trump administration, in stark contrast to Beijing’s retaliatory moves against US levies.
As per Gary Dugan, Chief Executive Officer at The Global CIO Office, “We remain overweight India in our portfolios. Supported by good domestic growth and aided by a likely diversification of supply chains away from China, Indian equities are seen as a safer bet over the medium term.”
In the last two quarters, India’s recent rebound follows a slump of almost 10 percent in the equity benchmark. The selloff came during the time when concerns over slowing economic growth, high valuations and an exodus by foreign funds are still on a momentum. Overseas funds have already sold more than USD 16 billion worth of local shares of equities this year on a net basis. The most they have withdrawn in any calendar year is USD 17 billion in 2022.
Even so, relatively lower valuations and optimism that the central bank will aggressively cut interest rates to support the economy are reasons for some investors to turn positive. The falling price of crude oil - a major import - is also aiding sentiment. Currently, the Nifty 50 benchmark is trading at 18.5 times its 12-month forward earnings estimate. According to data compiled by Bloomberg, in late September, the same was at its peak with respect to five-year average of 19.5 times and a multiple of 21 times.
India is not insulated, but relatively better positioned amid the risk of a trade war given its low direct revenue exposure to the US, particularly on the goods side. Indian equities should also benefit if oil prices sustain at low levels. The South Asian nation accounted for just 2.7 per cent of total US imports last year, compared with 14 per cent for China and 15 per cent for Mexico.
