October, 2025

Another Bouncer

Mohit Dugar, CFA

The US is making new headlines every day, but for all the wrong reasons. The month of September was no different in new shocks being delivered by President Trump. First bouncer being the decision of charging $100,000 for new H1B visa applications starting 1^st Oct’2025. India is the largest user of H1B visa and this decision hampers the plans of several students who are currently studying in the US or those awaiting lottery for H1B. Companies won’t be able to absorb such a steep cost for talent pool and this will lead to reduced hiring among immigrants. This can also create new opportunities and lead to emergence of new GCCs in India and Indian talent staying in India. But, this may lead to increased pressure on the Indian job market if new jobs are not created fasted enough to absorb the influx of this talent pool.

Another shock which was delivered was the decision to implement a 100% tariff on “branded” pharmaceuticals starting 1^st Oct’25. Initially, the pharma sector took a huge dip as they tried to understand the implications of such a decision. However, India is a big exporter of pharma products but, in the “generic” category, India is the single largest source of generic pharma products with around 40% share in US generic imports. This safeguards India for now. Also, Indian pharmaceutical giants have a presence in the US with manufacturing and R&D plants which protects the interest of these companies.

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One much anticipated move played out - the US Fed in its FOMC meeting decided to cut the benchmark interest rates by 25 bps to 4%-4.25%, marking its first cut of 2025. The move reflects the Fed’s growing concern about a cooling labour market, even as inflation has shown signs of edging higher. This rate cut should allow emerging markets like India to continue to focus on domestic growth and inflation dynamics while setting monetary policy. Capital flows should resume once tariffs settle at a more reasonable level. Falling U.S. rates make India's higher-yielding assets more attractive, driving inflows into equities and bonds. This is likely to fuel a short-term rally in Indian equities, while lower U.S. yields enhance the appeal of Indian debt. A weaker dollar strengthens the rupee, lowering import costs. Indian firms also enjoy cheaper global borrowing.

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But, the RBI in its MPC meet kept the rates unchanged. However, they have indicated that there is scope for more rate cuts, possibly in the December meeting. The Governor signalled a dovish pause, citing significant moderation in inflation, aided by low food and core inflation, leading to revised FY26 inflation down to 2.6% for FY26. The RBI has also revised GDP forecast upwards to 6.8%.

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Amidst all this turbulence, India’s FTA with the EU (EFTA) takes effect from 1^st Oct’25 onwards, providing new market to Indian sellers and possibly a new place for Indian talent after such a high-stakes US drama recently. Signed last march after nearly 16 years of negotiations, this deal will help in boosting the exports of textiles, leather and food products while attracting new investments. The agreement with EFTA goes beyond goods and services, aiming to attract foreign direct investments in India of $100 billion over 15 years and to create one million jobs

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Even all the noise in present environment is not letting the equity markets go in to panic selling. Nifty is holding on to its crucial levels of 24,600 indicating strength and belief in the long term India picture. Indian equity markets have multiple catalysts ahead. Earnings growth is expected to pick up in H2FY26, supported by GST rationalisation and the festive season. EPS downgrades have moderated recently, and stability is likely in overall earnings, driven by domestic-focused sectors like Financial Services, Discretionary Consumption, and Auto.

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Market has consolidated over the past one year and the valuations are now reasonable for the Nifty. Most negatives seem to be priced in and any improvement in sentiment can drive the next leg up for markets. At the same time, lot of new supply is coming in the form of IPOs which can absorb the demand.

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One thing is clear – it is America first, and President Trump is doing his level best to make that happen. However, it is yet to be seen whether the US benefits from all this or it becomes one of the major policy lapses of recent times. How all this pans out for India will be a major event to look forward to.

www.pinnaclefinvest.com

mohit@pinnaclefinvest.com

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