An important lesson from stock market history is that sharp market corrections and rebounds happen at the most unexpected times. That is why it is important to remain invested. More important, investors should not panic during a crisis, sell and exit from the market. Experience is that many retail investors panic during a crisis. They lose out when the unexpected rebound happens. This has happened many times in the past. In recent times, the ‘V’ shaped rebound from the Covid-19 crash of 2020 surprised even the seasoned investors. Those who remained invested didn’t lose. Those who mustered the courage to buy during the crisis gained handsomely. Those who panicked, sold and exited lost heavily. History repeated in April this year when the markets staged a sharp rebound from the crash triggered by President Trump’s ‘Liberation Day’ reciprocal tariff announcement on April 2nd. Nifty outperformed other large markets when it became the first major index to rebound to the pre-April 2nd levels. India’s outperformance stood out.
President Trump’s incoherent tariff policy has triggered unprecedented uncertainty and chaos in global trade and global economy. The full-blown trade war between US and China will have serious impact on both economies. US GDP growth in 2025 will be, most likely below 1 percent and the growth rate for China is now projected at 3.5 percent. The sharp deceleration in growth in the largest and the second largest economies of the world will take its toll on global growth, too.
During times of global turmoil like this, being a domestic consumption-driven economy is an advantage. India’s exports to US at $87 billion in 2024 is only around 2.2 percent of our GDP. Therefore, even in an unfavorable global economic environment India’s growth will remain resilient. For FY26, our GDP growth may decline to 6 percent from the RBI’s projection of 6.5 percent. Corporate earnings growth of around 12 percent is achievable for FY26. This can support the market during periods of weakness.
A silver lining in the dark global trade environment is that the trade war is largely confined to US and China. Other countries and the European Union have opted for a negotiated settlement with the US. India initiated bilateral trade talks with the US before April 2nd. The recent statement from the US treasury secretary that “the first US deals will be with our five allies – UK, Japan, Australia, South Korea and India” is a huge positive for India. After the meeting between PM Modi and the US Vice-President JD Vance the Government declared “significant progress” in the negotiations for a mutually beneficial bilateral trade agreement between the two countries. This is significant.
Latest trends like the dip in the dollar index from the high of 111 in mid-January to 99 by 22nd April bode well for capital flows to emerging markets. The dollar surge after Trump’s election victory triggered a momentum trade favoring the US. That momentum trade is reversing now. Among emerging markets, India has the potential to attract lot of capital flows. The only constraint is the high valuation.
Now, we do not know how this Trump-triggered tariff tantrums will evolve and settle. There is a high possibility that India might emerge a relative winner from the trade skirmishes. India’s macro fundamentals are strong and improving. Investors should keep their faith in the India Growth Story and continue to invest systematically.
