We are living at a time when Lenin’s famous words, “there are decades where nothing happens; and there are weeks where decades happen” are playing out. President Trump’s policies – economic and foreign policy related – are unleashing geoeconomic and geopolitical consequences whose impact on the world is likely to be huge and profound. The US-led advanced Western world played the leadership role in heralding a peaceful post-Second World War global order, which helped usher-in economic growth and development. The collapse of the Soviet Union and the wide acceptance of the market economy model enabled many developing countries like India grow fast. The US-led democratic Western world played a key role in the post-Second World War growth and development. This leadership role is now under threat thanks to the unconventional, uncertain and hugely disruptive policies and actions of President Trump.
What are the likely consequences of these disruptive policies for international trade, global growth and stock markets?
How should investors respond to the unfolding events?
The first major disruption during Trump 2.0 came from the ‘reciprocal tariffs’ announced in April 2025. Stock markets, globally, reacted negatively to reciprocal tariffs; but soon, most countries entered into bilateral trade agreements with the US and a potential trade war was averted. The fear that global trade and growth will be negatively impacted in 2025 also turned out to be a false alarm: Global GDP and global trade in 2025 are now estimated to have grown by 3 percent and 7 percent, respectively.
Tariff noise will trigger short-term volatility
Robust growth but weak earnings growth
India’s GDP growth post-Covid has been impressive, with an 8.1% average annual growth during the five[1]year period from FY22 to FY26, factoring-in the advanced estimates for FY26. This makes India thefastest growing large economy in the world during this period. Even though it is the low base of the Covid year FY21 that makes this growth rate look impressive, it is a fact that India has done well in achieving high growth despite many headwinds like Trump tariffs. Also, the fact that this high growth was achieved with financial stability makes the quality of growth superior. However, the significant weakness of this growth is that corporate earnings growth declined after the initial spurt during FY21 to FY24. Corporate earnings growth declined sharply from 24 percent CAGR during FY21 to FY24 to 5 percent in FY25. The underperformance of the Indian market began with this sharp dip in corporate earnings.
2025, the year of reforms
The year 2025 was a year of bold reforms: Budget 2025 raised the income tax exemption limit to Rs 12 lakh; GST rates were cut and rationalized in September 2025; and four new labor codes consolidating existing 29 labor laws were implemented in November. The RBI gave a big push to growth by cutting interest rates four times in 2025 by an aggregate 125 bp. These fiscal and monetary stimuli have succeeded in pushing growth to an estimated 7.4 percent in FY26. However, the low inflation rate has dragged the nominal growth rate down to an estimated 8.1 percent in FY26, against the Budget estimates of 10.1 percent. This low nominal GDP growth has impacted earnings growth in FY26. With inflation rising to normal levels in FY27, nominal GDP growth and corporate earnings growth will improve in FY27, hopefully facilitating a moderate rally in the market.
Stay invested and continue to invest
Market history teaches us that for wealth creation, the ‘time spent in the market’ is more important than ‘timing the market’. In this VUCA (volatile, uncertain, complex, ambiguous) world on steroids, geopolitical noise will impact the market causing heightened volatility. Stock markets have an uncanny ability to climb all walls of worries. Markets will climb the Trumpian wall, too. Personalities and events are temporary; economies and markets are permanent.
