If US tariffs stay put, markets may see extended downtrend: Deepak Jasani

Trump Tariffs News: If there is no major change to this tariff regime, as has been announced, the impact on global growth and Indian growth will percolate to corporate earnings

Trump Tariffs: Markets may be eyeing a second order impact of the sweeping reciprocal tariffs, announced by US President Donald Trump, at the ‘Make America Wealthy Again’ Event on April 2, 2025.

 

In an overnight address on Wednesday, Trump slapped more than 180 countries with reciprocal tariffs on US imports, levying them in the range of 10 per cent to as high as 54 per cent.

 

Higher tariffs by the US could strengthen the US dollar, hurting other currencies in the world. This may, however, not last long. What may be impacted are the interest rates of various countries as inflation and growth may get impacted. There may also be changes in fiscal policies of the affected countries as their trade deficits will be altered. So, overall, there may be a lot of second order impact of the US’ reciprocal tariffs.  ALSO READ | Let America pay for tariffs for a while, says Deepak Shenoy of Capitalmind

 

 

While a large part of this uncertainty is already discounted by the markets in the current valuations and there could be some recovery in the markets, that recovery may not last for very long as we have other events lined up, including corporate earnings for the March quarter (Q4FY25) and the Reserve Bank of India’s monetary policy meeting next week.

 

The mode of calculation of these tariffs is very silly. They have divided a country’s trade deficit with its exports. That is not the way to calculate the tariffs being levied. To that extent, there could be some relaxation. India, on its part, may offer some tariff cuts. There were reports, earlier, which suggested that India may cut tariffs on about 50 per cent of their exports. So we are willing to negotiate, which may help us rework the tariffs.

 

Similarly, the European Union may charge higher tariffs on US goods, in response to the tariffs charged on them. China, too, has warned the same. Overall, the situation is evolving, but the immediate impact will be negative for the global economic growth and the respective growth of each country.  ALSO READ | Tariffs raise recession risks in US, put Fed in tight spot: VK Vijayakumar

 

Having said that, if there is no major change to this tariff regime, as has been announced, the impact on global growth and Indian growth will percolate to corporate earnings with a lag of a quarter or so and valuations will shrink further.

 

With global risk appetite also shrinking in that case, we could be looking at an extended downtrend in the markets. This may start with a lag of a couple of weeks from now, and may continue for some time.

 

Against this backdrop, if an investor is over-invested in equities, he/she may look to reduce the exposure on any bounce in the markets over the next couple of days or weeks. He/she may reduce their equity allocation and move to stocks that are more domestic-economy focused, rather than global-economy focused. 

 

(As told to Nikita Vashisht)

 

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Disclaimer: Deepak Jasani is a market veteran.