Tariff game a non-event or new reality for your stocks? Here's how to Trump-proof your portfolio

Economic Times

7 hours ago

While Sensex and Nifty have averted a crash ever since US President Donald Trump started playing the tariff game with India on July 30 and gradually doubled tariffs to 50% from August 27, market insiders warn the real impact is unfolding beneath the surface: a $4 billion FII exodus since July, survival threat for many small exporters, and market's upside potential getting systematically strangled.
ADVERTISEMENT The first casualty of Trump tariff has been exporters across sectors like textiles, seafood, gems and jewellery, speciality chemicals, auto ancillaries and capital goods, but there are chances of a second-order effect also kicking in gradually if tariffs remain high.
Beneath the deceptive calm in the stock market is a brutal threat to export-dependent sectors, with textile manufacturers halting US orders, seafood exporters staring at Rs 24,000 crore losses, and jewelry makers watching their competitiveness evaporate overnight.
Morgan Stanley's damage assessment shows the Indian seafood export industry alone "faces a potential loss of Rs 24,000 crore due to the US doubling tariffs to 50%. This move puts India at a significant disadvantage compared to competitors like Ecuador, impacting exporters and potentially farmers.""Indian textile and apparel exporters are halting US order manufacturing due to President Trump's tariff doubling to 50%, severely impacting their competitiveness against nations like Bangladesh and Vietnam," Morgan Stanley warns, predicting "export decline, job losses, and overall uncertainty in the sector."
Also Read | Tariff tandav on India's $87 billion export machine. Decoding impact on economy, markets
ADVERTISEMENT While markets appear resilient, the $4 billion FII outflow since July tells a different story. Foreign investors are voting with their feet, sensing what domestic sentiment hasn't yet grasped: Trump's tariffs have fundamentally altered India's risk-reward equation.While a weaker than expected Q1 earnings season is one of the major overhangs on the market, tariff is only making it tougher for many institutional investors who tend to avoid uncertainty. Even on Thursday when the market ended marginally higher, FII selling figure was around Rs 5,000 crore.
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Emkay Global's Seshadri Sen warns of cascading consequences beyond immediate export losses: "From an equity markets perspective, the direct impact on earnings of listed companies may be limited but elevated tariffs will lead to job losses in many labour-intensive industries and may propel the RBI to opt for more rate cuts and push the central government to offer fiscal support to these sectors, including protecting banks from potential NPAs."
ADVERTISEMENT The policy implications are staggering. More rate cuts, fiscal stimulus packages, and banking sector protection measures to counter what markets are treating as a "non-event."Sen anticipates a "short-term vicious cycle of CAD worries, rupee weakness, FPI selling, and a correction in equities," though he believes this would be "short-lived" given India's domestic consumption base.Nomura's analysis reveals why the tariff threat goes beyond headline numbers: "The lower value addition and thinner margins across a number of industries (textiles, gem & jewellery) could jeopardise operations, especially of smaller firms that will struggle to compete."
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Also Read | What Trump's 50% tariff means for stock market investors and should Nifty bulls worry
Rather than shifting entirely to cash, it may be wise to take a more balanced stance, focusing on select equities that tend to fare better in uncertain conditions, such as defensives and quality large cap stocks, analysts say."At the same time, keeping some cash on hand for tactical flexibility can help you react quickly as new information emerges or as attractive opportunities present themselves. While caution is warranted, history shows that well-chosen stocks can generate solid returns even in turbulent markets," said Om Ghawalkar, Market Analyst, Share.Market.By combining defensive equity exposure with prudent risk management, you can protect capital while still positioning yourself to benefit when the environment improves, he said.Before jumping the gun, investors must also keep in mind that there are too many variables at play – renegotiated tariffs, sectoral carve-outs and carve-ins, and India slowing Russian oil imports."Minimize exposure to export-oriented and globally exposed sectors. Even if the final trade agreement is not as bad as it appears now, a sharp slowdown in the global economy looks inevitable," Sen said.He has also told clients to buy the dip if the market correction goes above 5% from here. "Valuations would then be comfortable at well below the long-term average and, the direct impact on the listeduniverse earnings are negligible. Also, this does not impede India's 2HFY26 cyclical growth recovery, which is largely driven by domestic impulses," Sen said.Those with a short-term view on the markets can avoid exporters like textiles, gems and jewellery, speciality chemicals, auto ancillaries, etc and focus on sectors insulated from US like banks, consumption, telecom, etc.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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