Stock market strategy: Where to invest amid tariff fears, or stay in cash?

As Indian markets grapple with tariff uncertainty, the stock market's recovery in the latter half of March 2025 was disrupted as stocks declined in line with global trends. While analysts foresee short-term volatility, they advise investors to steer clear of sectors most adversely affected by the tariffs, which they feel are mostly priced in by the markets at the current juncture.

 

On Tuesday, the key gauge Nifty 50 fell as much as 1.59 per cent, or 373 points, in the intraday trade to hit a low of 23,148, marking the worst intraday fall since February 28, while the 30-stock Sensex fell as much as 1.78 per cent, or 1,502 points, to rally below the 76,000 mark. 

On Wednesday, the markets recovered some of their losses with the Sensex and the Nifty gaining around 0.3 per cent, respectively. Global markets, too, were nervous ahead of the event with most Asian frontline indexes such as the Hang Seng, Nikkei 225, Taiwan Weighted and Shanghai Composite trading flat on Wednesday.

 

Meanwhile, US President Donald Trump is set to announce his reciprocal tariffs plan on Wednesday during an event in the White House Rose Garden. According to reports, the White House has not reached a firm decision on their tariff plan, and Trump’s team continued to hash out their options ahead of the event.  

 

Amid this, analysts advise investors to adopt a wait-and-watch approach, anticipating short-term volatility. Experts also believe the tariff actions will have no immediate impact on businesses or the economy. 

 

The actual effects of these tariffs on businesses, supply chains, and consumer prices will take time to materialise, likely becoming more evident over the next quarter, according to Narendra Solanki, head of fundamental research and investment services at Anand Rathi Shares and Stock Brokers.

 

Despite this anticipated short-term turbulence, the ongoing market correction may present an opportunity for long-term investors, Solanki added. Investors can potentially benefit from the market’s eventual recovery and sustained growth over time.”

 

According to Deven Choksey, managing director at DRChoksey FinServ, not all companies will be affected by tariff imposition, and even if they do, it will not be on a huge scale. Investors, he advises, should be aware of the situation and invest accordingly for the long term.

 

Short-term view

 

According to analysts, stock markets have largely factored in the impact of the Trump administration’s tariffs. The market has partly discounted the tariffs, as is evident from the correction in externally linked sectors like information technology (IT), pharma and chemicals, according to VK Vijayakumar, chief investment strategist at Geojit Investments. “But if the tariffs are severe, further correction is likely to. However, since India’s macros are looking up, the market will get support at lower levels,” he said.

 

While advising a calibrated buying approach for investors, Vijayakumar said that a huge dent is unlikely, given the tariff action. “Domestic consumption-driven sectors are resilient despite the weakness in the market,” he added 

 

Markets are likely to enter a period of consolidation at current levels, forming a base that could support the next phase of recovery, Solanki said. “Investors should adopt a balanced approach in the short term.” A prudent strategy in the near term could involve avoiding sectors that are likely to face the most significant negative repercussions from the tariffs, according to Solanki. He added that focusing on domestically oriented sectors that are less exposed to global trade tensions could provide a more stable investment avenue.

 

Volatility in the stock market has already been on the rise ahead of the key event. India's stock market fear gauge, India VIX, spiked 10 per cent on Tuesday.

 

"Investors should not be overly concerned about the tariff, as its impact will unfold gradually over time rather than immediately. We will have to wait and see till the time the industry absorbs whatever the tariff-related consequences are," Choksey added.