Views by Experts on Indian equity benchmark indices, crashed in trade

Yashovardhan Khemka, Senior Manager – Research & Analytics at Abans Holdings

The Indian equity markets are on a weak footing due to uncertainty surrounding Trump’s proposed trade policies are key factors impacting market sentiment. First, these policies are inflationary, thus delaying interest rate cuts, thereby making U.S. businesses more attractive to global investors. Additionally, the resulting strength of the U.S. dollar is prompting FIIs to take profits in developing economies like India, as dollar-adjusted returns appear less favourable. Second, Trump’s proposed tariffs on U.S. imports could negatively impact Indian companies reliant on the U.S. market, further impacting their future business forecasts. Meanwhile, the slowdown in Indian economic growth is leading to a decline in earnings growth rates for Indian companies, prompting a rationalization of equity valuations after years of rapid earnings expansion.

 Recent U.S. labor market data showed an addition of 256,000 jobs in the previous month, reflecting strong economic momentum. This further reduces expectations of an interest rate cut, strengthens the dollar, and exacerbates FII outflows. The resulting weakness of the Indian rupee against the dollar has contributed to a decline in Indian markets.
We anticipate a further market correction of 4-6% before recovery begins. A clearer understanding of Trump’s policies, likely 1-2 weeks after his inauguration, could help stabilize market sentiment. Investors are advised to adopt a cautious “wait-and-watch” approach until greater clarity emerges regarding U.S. policies and the performance of Indian companies.

 Manish Chowdhury, Head of Research, StoxBox

 A combination of factors, especially global, have weighed on market sentiment this morning including rising US bond yields, strengthening US Dollar and an increase in crude oil prices. Also, uncertainty surrounding trade policies after Donald Trump comes into power, a slowing Indian economic growth and expectations of a tepid third-quarter corporate earnings have prompted a risk-off sentiment amongst market participants. However, our sense is that downside risks from the current levels looks limited and it would be prudent to build positions in high-quality stocks where valuations are reasonably comfortable from a medium to long term perspective. The upcoming Union budget and the RBI monetary policy meeting in February have the potential to surprise market participants on the upside by unveiling measures to catalyze growth in the Indian economy.