Markets will remain irrational due to persisting uncertainty as the US is trying to restrict trade deficit with aggressive tariffs. US President Donald Trump's objectives are appropriate, but the process has been difficult to understand for investors. The process will create a lose-lose situation for the world as well as for India, Kotak Mahindra AMC Managing Director Nilesh Shah said.
Trump has announced a basic 10% tariff on all exports to the US, and additional tariff on around 60 nations. India faces 26% tariff on its imports to the US. Top trading partners China faces total 54% tariff, while European Union faces 20% tariff. The aggressive tariff policies have rattled the global markets, subsequently weighing Indian markets.
The NSE Nifty 50 declined 5.07% to 21,743.65, and the BSE Sensex fell 5.23% to 71,425.01 on Monday. Both the indices hit the lowest level since June 4, 2024, following a global rout.
The Nikkei 225 fell 8.84% and the Kospi fell 5.59% so far Monday. Hang Seng slumped 12.60%.
On Friday, the Dow Jones Industrial Average and S&P 500 ended 5.50% and 5.97% down respectively. The Nasdaq Composite ended 5.82% down.
Kotak Mahindra AMC Managing Director Nilesh Shah was talking to NDTV Profit Executive Editor Niraj Shah at Talking Point Monday.
Kotak Mahindra AMC Managing Director Nilesh Shah was talking to NDTV Profit Executive Editor Niraj Shah at Talking Point Monday.
Even US, the world's biggest economy cannot afford a fiscal deficit of 6.2% and the current account deficit of 3.00–3.5% every year, despite having reserve currency. Clearly, the US needs to deal with these factors hence the uncertainty will persist, Shah told NDTV Profit.
There is little hope of reversal of market selloff before it's too late. Markets always like to predict. As of today, market participants do not know at what scale tariff will be levied on pharma companies and who will bear the cost — manufacturers or distributors. But pharma stocks are declining as they're assuming tariffs will be levied irrationally as it was on other products, Shah said.
There are equally opposite cases. Levying tariffs has resulted in recession in the US in 1828 as well as in 1930. There's a possibility of stagflation in the US which will lower global growth, he said.
JPMorgan Chase & Co said that it expects the US to fall into recession in 2025 after calculating impact of US tariff policies, Bloomberg earlier reported.
Now, US is the engine of the global GDP along with China and India. If US growth stops, global growth is likely to be affected as well. Negotiations are the only hope, Shah said.
Sectoral Recommendations
Domestic market-focused sectors will stand out in this situation. India's growth will be affected in case global growth slows. However, the country will still deliver positive growth. There could be opportunities in textiles, chemicals, pharmaceuticals, garments, footwear, and cement is another good sector to invest because of its internal dependency, Shah said.
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