Indian Markets Bounce Back Strongly Post-Tariff Turmoil
New Delhi: Indian equities experienced a significant surge as markets reopened after an extended weekend, with the NSE Nifty 50 Index climbing by 2.4% on Tuesday. This remarkable rebound not only surpassed its closing level from April 2 but also positioned India as the first major market to recover from the recent tariff-induced losses imposed by the U.S. The swift recovery highlights India’s growing reputation as a safe haven amid ongoing global market fluctuations.
Strong Domestic Fundamentals Bolster Investor Confidence
Investors are increasingly optimistic about India’s robust domestic economy, which is perceived as better equipped to withstand potential global slowdowns compared to its peers. The ongoing U.S.-China trade war has further enhanced India’s appeal as a viable alternative for global manufacturing. Unlike Beijing’s retaliatory measures, India is pursuing a conciliatory approach and is actively working towards a provisional trade agreement with Washington. Gary Dugan, CEO of The Global CIO Office, expressed confidence in India’s market, stating, “We remain overweight India in our portfolios.” He emphasized that strong domestic growth and a likely diversification of supply chains away from China make Indian equities a safer investment in the medium term.
Improved Investor Sentiment Amid Market Volatility
The recent rally in Indian markets comes on the heels of a nearly 10% decline in the Nifty 50 over the past two quarters, driven by slowing economic growth, high valuations, and significant foreign investor outflows. This year alone, overseas investors have withdrawn over $16 billion from Indian equities, nearing the record $17 billion pulled out in 2022. However, the current positive sentiment is supported by lower stock valuations, anticipated aggressive rate cuts by the Reserve Bank of India, and decreasing crude oil prices, which are beneficial for India’s import-heavy economy.
India’s Resilience Amid Global Trade Challenges
Despite the challenges posed by global trade tensions, India is seen as relatively resilient. According to Bloomberg data, the Nifty 50 is currently trading at 18.5 times its projected 12-month earnings, which is below its five-year average of 19.5 and significantly lower than its peak multiple of 21 recorded in late September. Rajat Agarwal, a strategist at Societe Generale SA, noted that while India is not entirely insulated from global trade risks, it is better positioned due to its low direct revenue exposure to the U.S. market, particularly in goods. He added that Indian equities could benefit further if oil prices remain low, as India accounted for only 2.7% of total U.S. imports last year, a stark contrast to China’s 14% and Mexico’s 15%.
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