The looming imposition of reciprocal tariffs by former US President Donald Trump, set to take effect in April, has added another layer of uncertainty to global markets. Historically, trade war concerns have had a profound effect on equity markets, with the 2018 US-China tariff dispute causing prolonged volatility and significant corrections across major indices. If these new tariffs materialize, they could disrupt global supply chains, impact corporate earnings, and drive inflation higher, forcing central banks to maintain restrictive monetary policies longer than expected.
For Dalal Street, the biggest concern is the impact on export-driven sectors. Indian IT companies such as Infosys, TCS, and Wipro generate a significant portion of their revenues from the US, and any trade restrictions could hit their profitability. Additionally, the auto sector, which has substantial exposure to global markets through exports and supply chains, may face headwinds. Companies like Tata Motors, Mahindra & Mahindra, and Maruti Suzuki could see increased input costs if tariffs affect raw material imports.
In contrast, sectors with a strong domestic focus, such as FMCG and pharmaceuticals, might fare better in the near term, as they are less dependent on international trade. Defensive stocks, including consumer staples and healthcare, could attract safe-haven buying if global market volatility persists.
Foreign institutional investors (FIIs) hold a key role in determining short-term market movements. If the sell-off in global equities accelerates, FIIs could continue pulling money out of Indian stocks, leading to sharper corrections, particularly in large-cap and growth-oriented stocks. Historically, similar episodes of FIIs selling due to global concerns have led to corrections in Indian indices ranging from 5-10% over a few weeks.
For retail investors, this presents a classic dilemma: whether to stay on the sidelines or use the dip as a buying opportunity. Analysts suggest that long-term investors should focus on quality stocks with strong fundamentals and avoid speculative bets. Stocks in the banking, metals, and IT sectors may remain under pressure, while energy and domestic consumption-driven companies could offer relative stability.
Overall, while market sentiment remains fragile, key triggers to watch in the coming days include the US inflation report, Federal Reserve policy signals, and updates on tariff discussions. If inflation data indicates easing price pressures, markets could find some support. However, any escalation in trade tensions or weak corporate earnings could trigger further downside risks.
