Dear patrons, the long pending trade deal between India and the US has culminated into the US imposing 25% tariff on India and penalizing it for buying energy from Russia. India and US have been at loggerheads for the trade deal with an eye on the deadline (set by US president) of 1st August. Indian delegation also visited the US, but the deal failed to take off. How much of an impact will the new tariff regime have on India and how will the markets take it?
In our opinion Indian economy is very resilient and is driven by domestic consumption more than exports. IMF in its recent report has increased its forecast on growth of Indian economy from 6.2% to 6.4% for FY26. India remains the fastest growing big economy in the world. Indian exports to US are a meagre 2% of its GDP, that too mostly in ultra luxury items like diamonds. Bulk of Indian exports to US are in pharma which is exempt from tariff. Sure enough, some exporters will face hard time due to these tariffs but the overall picture doesn't look that bad either.
India is also being penalized for buying energy from Russia. This step is absolutely uncalled for and proves the US hegemony. India, by buying Russian oil has managed to keep the global economy, including the US economy, afloat. Had India not bought the cheap Russian oil, crude oil prices would be on the boil by now, endangering global growth. US would be grappling with high inflation and the FED would be in no position to cut interest rates. US should be grateful to India for saving its economy.
How would markets react? In our view, Indian markets after a small jitter, should shake off this tariff thing and things should be normal in no time. Markets have a habit of not liking uncertainties, now that the lead is off the tariff stuff markets should normalize. Moreover, as per Dow theory, "Markets discount all information". In our view markets have discounted the tariff and MAGA stuff far more than it deserved.
Investors should look to make most of this opportunity and add on to quality stocks. Opportunities like these are seldom available.
Stay Invested!!!
P.S.: This communication is for educational purpose only and does not recommend buying or selling any stock or index. Trade at your own risk.
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