Worst over but full blown 'tariff war' not priced-in by markets: Analysts

Stock Market News: Donald Trump is set to impose reciprocal tariffs on all the US' trading partners including India, on April 2, 2025

Indian stock markets have been staging a swift recovery for the past few days, finding their feet after months of selling, especially by foreign investors. 

On Monday, the BSE Sensex surged for a sixth straight day, adding another 1,079 points. Overall, it has added 4,156 points in the past six sessions. The NSE Nifty advanced 308 points, climbing 1,261 points in six days. 

While analysts see the worst of the selloff behind the markets, they remain sceptical about the sustainability of the rally, and caution investors against deploying large sums of investible money. 

“The ‘big’ correction in the markets is behind us, but there could be one more dip before we see a sustained uptrend,” said Jignesh Desai, CEO, institutional equities, Centrum Broking. 

 

Historically, markets have seen profit booking in February, March, and, sometimes, in the early weeks of April, due to funds’ rotation at the end of a financial year, he said. With US President Donald Trump’s deadline to impose reciprocal tariffs coinciding with this, he expects some pullback on the bourses in the coming weeks. 

 

Reciprocal tariffs: The unknown ‘Trump’ card 

Trump is set to impose rec­iprocal tariffs on all the US trading partners including India, on April 2, 2025. Trump, according to a Bloom­berg report, could announce widespread reciprocal tariffs on nations or blocs but may exclude some sectoral-specific tariffs. This ambiguity, analysts said, remains a key risk for the markets in the near term. 

“Reciprocal tariffs remain a risk and are not fully priced in. Any escalation could lead to short-term volatility, impact exports, and delay rate cuts due to potential inflationary pressure,” said Nirav Karkera, head-research, Fisdom. Concurring with his views, Sanjeev Hota, head of research at Mirae Asset Sharekhan, added that the full-blown impact of a trade war is still not discounted by the markets. 

“Sentimentally, most of the negatives from Trump’s tariff imposition seem to be in the price. However, the actual tariff rate, sectors involved, how India will be impacted if there is an outright trade war after the US’ tariff announcement, is still not factored in by the markets,” he said. These uncertainties, Hota said, are set to induce volatility in the markets in the coming weeks. 

Investment strategy 

Against this backdrop, analysts suggest investors should wait for clarity to emerge regarding the reciprocal tariffs before taking a call on further investment. Jignesh Desai of Centrum Broking said that market participants may use any dip in the market to add quality stocks from the banking, cement, defence, and asset management companies (AMCs) sectors. “Post-April, I see the markets staging a sustainable upswing with quality midcap and smallcaps also participating in the rally. Investors should, however, be mindful of investing in companies having comfortable valuation, strong balance sheets, and good corporate governance,” he said. 

From a long-term lens as well, improving macro indicators, moderating inflation, resilient domestic flows, expectations of policy continuity post-elections, and foreign investors buying into Indian stocks should help markets stage a stable uptrend. “While global risks persist, the worst of the economic slowdown seems to be behind us, and high-frequency data points indicate a pickup in activity. Investors should adopt a selective, theme-based strategy focusing on sectors aligned with India’s capex and consumption revival,” suggested Karkera. 

Key themes to focus on could be capital goods, infrastructure, health­care (especially hospitals and pharma), financial services like private banks and capital markets, and consumer discretionary like travel, QSR and e-commerce, he said.  Investors may allocate 60 per cent of their funds in largecaps, 20 per cent in midcaps for growth, and 20 per cent in select smallcaps with strong earnings visibility and sectoral tailwinds, he advised.