April was a very turbulent month for the global economy. The uncertainty surrounding tariffs in Trump era is haunting business owners worldwide, they are rushing to get shipments in to the US, as a result China’s trade surplus with the US has hit record levels – over $100 billion. India’s trade surplus with the US also widened to just over $40 billion, driven majorly by Apple rushing exports from India.
When the tariffs were announced for the first time, panic alarms were sounded and the markets crashed worldwide. India VIX also shot up 60%. However, the respite from tariffs for 90 days gave a breather and the markets rallied from the April 7th lows of 21,743.65 (Nifty) and 73,138 (Sensex) to 23,851.65 and 78616.77 respectively on April 17th, implying an approx. return of 9.5%-7.5% in just 10 days.
China imposing retaliatory tariffs further aggravated the situation – US imposing a tariff of 145% on Chinese imports and China imposing a reciprocal tariff of 125% on US imports risks the world entering a global recession and the possibility of triggering a trade war: US vs Rest of the World.
However, this isn’t the first trade war that the world has witnessed, the first ever trade war was recorded between the Byzantines and the Bulgarians from 894-896, with the Bulgarians emerging victorious. India also has witnessed its fair share of trade related conflicts as it was one of the biggest trading hubs of that time. One of the earliest conflicts was the Chola conquest of Srivijaya (Indonesia) in 1025, undertaken to assert control over the Strait of Malacca and the Sunda Strait – a very important trade route.
Trade war can take complex shapes and result in a wide variety of outcomes, such as trade treaties, military conflict, currency devaluations and more. In the current scenario, the volatility is expected to remain high as long as the Trump administration does not implement the tariffs unilaterally and goes through it rather than implementing once and then suspending it. This causes chaos and panic among the market participants and hampers business as they don’t know the next course of action due to impending uncertainty.
India’s position remains relatively insulated. While investors can continue to expect equity market volatility, maintaining the appropriate Asset Allocation through volatility management is utmost important at this point. India also has implemented far reaching changes that aims to boost domestic consumption and savings, like eliminating income tax for individuals earning below ₹12 lakhs, 8th pay commission among many other – this can propel consumption upwards of ₹1 lakh crore in the Indian economy. All of this coupled with favourable macro-economic trends – falling inflation (4.6%), rate cut cycle by RBI (with more anticipated) and falling debt-to-GDP ratio puts India in the driver’s seat. This will reduce India’s dependence on foreign markets and make its economy self-reliant.
But, there are certain pain points that have to be addressed if India wants to be a developed nation by 2047 – increase in government and private capital expenditure, reduction in income inequality, increased ease of doing business, making India an R&D hub, taking advantage of the China+1 narrative and attracting high-paying jobs in the value chain rather than only the low-paying back-end jobs.
India story still remains intact and the macro-environment also tilts in our favour. It needs to be seen now how India capitalises on the same and makes the most of it.
