Trump's Tariff Policy Creates Global Market Volatility; 2008-like Crisis Possible. Investors Urged to Exercise Caution, Focus on Defensive Sectors; FIIs Undertake Heavy Sell-Off.
Trump Tariffs: Donald Trump's imposition of tariffs has triggered significant declines in global markets. Market experts believe the current situation could mirror the 2008 financial crisis and the 2020 pandemic. The Indian stock market has already reflected this—a single-day drop exceeding 4%, followed by a 1.5% recovery, has heightened investor anxiety.
Foreign Investors' Sell-Off Causes Upheaval
Foreign Institutional Investors (FIIs) have withdrawn ₹22,770 crore from the equity market in just five trading sessions. Domestic Institutional Investors (DIIs), however, have purchased ₹17,755 crore, providing some balance.
Sectors Most at Risk
According to a Nuvama Institutional Equities report, tariff wars are most severely impacting cyclical sectors such as metals, real estate, and industrials. These sectors are expected to experience the most significant declines.
Where Investors Should Focus
The report identifies sectors like FMCG, cement, and telecom as safer options, considering their defensive nature and resilience to tariff impacts. Furthermore, the b balance sheets of Indian companies and the potential for supportive policies from the Reserve Bank of India (RBI) could offer some relief.
International Market Decline
Within 48 hours of Trump's tariff announcement, the S&P 500 and crude oil prices experienced a drop of approximately 10%. Spreads in US High-Yield Bonds increased by 75-100 basis points. This level of sell-off in risk assets was only witnessed during the crises of 2008 and 2020.
Is This a 2008-like Crisis?
Nuvama's report notes that while this situation originates in the US, like 2008, the circumstances differ. Currently, there is a significant lack of policy coordination between the US and other countries. Furthermore, disagreements are evident between the US Treasury and the Federal Reserve.
Investment Strategy for Investors
- Maintain distance from high-risk sectors for the time being.
- Focus on defensive sectors such as FMCG and telecom.
- Monitor export-oriented companies given the rupee's depreciation.
- Exercise restraint until new policy announcements are made.
