Crises have been happening with surprising regularity in recent times. Natural disasters, man-made catastrophes and unexpected geopolitical developments have been impacting economies and markets in an unprecedented manner. When one crisis gets resolved, another one crops up, keeping markets on tender hooks. For investors, navigating these crises is a tough job. During turbulent times like these, more important than financial acumen is emotional intelligence.
Let’s get this uncertain, volatile world and its geopolitical and geoeconomic consequences in perspective.
The VUCA (Volatile, Uncertain, Complex, Ambiguous) world began with the breakout of the Covid-19 pandemic in 2020. The fast and steep Covid crash of March 2020 unnerved investors, many of whom panicked and sold out. Before the global economy could recover from the Covid shock, Russia invaded Ukraine triggering a war in Europe and high inflation. Leading central banks of the world responded to the inflation threat by raising interest rates. The synchronized monetary tightening pushed the global economy into a slowdown. The Gaza conflict, which lingered long and threatened to escalate into a wider conflict, didn’t unleash any serious geoeconomic consequences, even though the deaths and destruction were tragic. Perhaps the most disruptive event happened with Trump 2.0 and its profound geopolitical and geoeconomic consequences. President Trump disrupted the global political order with his unconventional, dramatic decisions bordering on the surreal. Weaponization of tariffs by President Trump threatened to rattle international trade, but the trade deals which the US struck with most countries salvaged the situation, though sub-optimally.
Now, in a major twist to this tariff tale, the US Supreme Court has struck down Trump’s reciprocal tariffs as illegal, in a major blow to the US president. Instead of the reciprocal tariffs, countries including India will be subject to a new 15 percent tariff (for 150 days) imposed under section 122. Legal experts are of the opinion that this too will be questioned in courts.
Meanwhile, the US-Iran standoff continues with threats of US military intervention. As the world hops from one crisis to another, what should investors do?
An important take away from this crisis-ridden period is that each time the market corrected, it recovered smartly. Globally, markets have done well supported by humungous liquidity injected into the financial system by the central banks, notably the Fed, and recovery in corporate earnings. Investors who kept their cool during the many crises and remained invested benefited. Those investors who mustered the courage to be ‘greedy during panic’, laughed all the way to the bank.
It is important to understand that despite the unprecedented volatility in these turbulent times, the Indian economy has come out with flying colors. India’s macros are robust: the best GDP growth rate among large economies of the world, declining fiscal deficit, low current account deficit, and low inflation. The weak spot – tepid corporate earnings – which has been restraining the market, is now improving. Q3 earnings indicate a rebound with 14.7 percent YoY growth in corporate earnings. Indications are that the earnings momentum will continue in Q4 further accelerating in FY27. This will make largecap valuations fair and has the potential to attract steady domestic and foreign capital inflows, going forward. In brief, robust macros and improving micros bode well for the market. This fundamental tailwind is likely to dominate any temporary global headwind. Therefore, investors should keep their cool even when storms blow. Even fierce storms are temporary.
