Talking Point This Week — Iceberg, Right Ahead?

Here are the key talking points this week: 

US President Donald Trump certainly made 'Liberation Day' historical. Whatever your own opinion might be, he grabbed headlines. A former US official, who spoke to NDTV Profit, reiterated that many of Trump’s tariff orders may violate existing federal laws and the US Constitution and some of these decisions could eventually be decided by the US Supreme Court. But that hasn't stopped the world from participating in a risk off. Markets sank, oil prices gave way and yields went in a tizzy. By the way, did you know that Lesoto, the country with the highest tariff of 50%, has a trade deficit of 99%, worth $185 million with the US? And what is the trade – US imports knitwear from Lesoto!

Here are the key talking points this week: 

Thursday was a wild ride for the US markets. Stocks, dollar, and oil prices plummeted, while bond yields and volatility skyrocketed. It was the worst day for S&P 500, Dow Jones Industrial Average, and Russell 2000 since June 2020, and the Nasdaq saw its biggest drop since March 2020. The Roundhill 'Mag 7' ETF took a record 6.9% hit, bringing its decline since December to a whopping 25%. Wall Street experts are warning that Trump's tariff moves have increased the risk of a US recession this year. Inflation, which was heading for a soft landing, might now surge to pandemic levels. Trump had promised to bring down consumer prices quickly. A new Reuters poll shows his approval rating dropped instead, to 43%. However, there is some time before the approvals matter, and the US president will have multiple things up his sleeve to bring back ratings. As he said on Air Force One as well, he is open to negotiations. A thing to watch – US tariffs on China are among the highest. Will Beijing risk devaluing the yuan? The street will certainly be keeping an eye out for the same.

The European Union, led by French President Emmanuel Macron, is taking a strong stance against the US following Trump's tariffs on the EU and other regions. Macron urged companies to pause investments in the US, questioning the logic of EU firms investing billions in the American economy while being punished by the US. Macron's concerns are echoed by Germany, with outgoing German Vice Chancellor Robert Habeck comparing Trump's economic actions to Vladimir Putin's war on Ukraine. Habeck emphasised that the response to these actions must be proportionate to the magnitude of the decision. Canada had strong words, saying, "We're going to fight these tariffs with countermeasures. In a crisis, it's important to come together and it's essential to act with purpose and with force, and that's what we'll do". This growing opposition from the EU and other regions may signal a significant shift in global economic dynamics, with potential implications for international trade and relations, already reeling by the US actions in recent months.

The White House on Wednesday said India’s high tariffs and trade barriers increase costs for US exports, citing disparities in tariff rates between the two countries. India imposes a 70% tariff on passenger vehicle imports with internal combustion engines, while the US applies a 2.5% tariff, the White House said in a statement, adding that networking switches and routers face a 10-20% tariff in India, whereas the US imposes none. India levies an 80% tariff on rice in the husk, compared to the US rate of 2.7%, it noted, adding, apple imports to India are subject to a 50% tariff, while the US allows duty-free entry. The US estimates that removing these trade barriers could increase its exports to India by at least $5.3 billion annually.

Also, 25% tariff on foreign automakers came into effect on Thursday midnight. The tariff is applicable on auto components, unassembled vehicles and fully imported cars, according to the declaration on Wednesday.

With India, the US has the fourth largest trade deficit in pharmaceuticals as of 2024 (after Ireland, Switzerland and Singapore), accounting for 10% of the US pharmaceutical trade deficit. This deficit has increased over the past two years, particularly due to contribution from generic Revlimid in the US. However, the generic pharma industry, a significant contributor to lowering drug costs in the US, was spared. This exemption is temporary, as Trump said the next day that pharma tariffs will be coming soon. The index duly surged on Thursday and sank on Friday. Comments from companies are strong, with Syngene's Peter Bains saying, "With a market share of only 2–3% of a global market valued at $140 billion-plus in 2024, the market potential and opportunity ahead is enormous and attractive. Momentum is on India’s side with a CRDMO CAGR growth from 2019–2024 of 15%, double that of the global growth rate of 7–8%." 

The Q4 business updates posted by several key companies have been mixed. Bajaj Finance reported a 26% year-on-year growth in assets under management, meeting estimates, and is on track for a 25% AUM growth in fiscal 2026. HDFC Bank's deposit growth fell short of expectations, but loan growth was in line at 4%. Bandhan Bank delivered strong loan and deposit growth, with a 4.5% quarter-over-quarter increase in loans and a 7% sequential rise in deposits. L&T Finance experienced moderating loan growth. Avenue Supermarts reported marginal sales growth, but added 50 stores in fiscal 2025. Marico reaffirmed its target of achieving double-digit sales growth in fiscal 2026. And not all consumption names were strong, because Dabur mentioned flat growth with lower margins for Q4.

We need a sound Q4 results delivery, as well as commentary to be constructive around domestic growth. Remember, funds have started flowing from the government to companies and banks under various schemes like PLI and credit guarantees, which hopefully is leading to private capex and credit offtake. And the RBI announced OMOs of Rs 80,000 crore for April as well. There is hope of some growth-supporting actions from the central bank at next week's policy too. That optimism and domestic growth is the only antidote in these uncertain global times. The games have begun. We need to win at the end.

Until next time...

Niraj Shah