Expert view: Trump's tariffs may hit India's growth; Nifty to remain rangebound in August

Mint

13 hours ago

Expert view: The Indian stock market is likely to be rangebound in August amid global uncertainty, weak FII flows and earnings downgrades, according to Jashan Arora, Director at Master Trust Group. Arora, however, emphasised that structural fundamentals remain intact. In an interview with Mint, Arora shared his views on the market outlook, sectors he is positive about and how a delayed rate cut by the US Fed may impact the Indian stock market. Here are edited excerpts of the interview:
The Indian stock market is anticipated to continue its range-bound to sideways trend in August.
Historically, August seasonal patterns have shown a limited upward trend. So yes, some near-term volatility may persist due to global uncertainty, weak FII flows and earnings downgrades.
However, structural fundamentals remain intact. A selective buy-on-dips approach, especially in quality large caps, could still work.
That's correct. Markets struggle to price in geopolitical risk, particularly given Trump's volatile stance.
As investors are aware that Trump regularly uses tariffs as a negotiating tool to secure more favourable trade agreements with major economies, the Indian stock market is currently undervaluing the potential impact of new tariffs.
In light of this uncertainty, market players hope that future talks between the USA and India will result in some relief in the form of a partial tariff reduction or easing.
Direct impact is limited as India isn't a primary target. But a broader global trade slowdown could weigh on exports and earnings.
Risk-off sentiment can also indirectly impact Indian equities. Trump's 25 per cent tariffs on Indian exports present a near-term headwind for the equity market, particularly for export-oriented sectors such as textiles, electronics, manufacturing, gems and automobiles.
The move could damage India's growth prospects, limiting foreign portfolio inflow and contributing to near-term volatility.
However, anticipated negotiations with the US may result in a partial reduction of tariffs, potentially providing some relief to investors' sentiment.
Q1 earnings, which presented a mixed picture across sectors, are largely in line with expectations.
While banks generally reported a contraction in NIMs after the recent rate cuts, the IT sector reported muted growth, reflecting ongoing challenges.
On the plus side, some industries, such as cement, renewable energy, and two-wheeler automobiles, are seeing strong volume growth.
Overall, the first quarter of FY26 has been a mixed earnings season, with some industries demonstrating resilience and others facing challenges.
We're constructive on rare earth materials, luxury and capital goods. These are supported by structural demand, policy tailwinds and shifting global supply chains.
A bottom-up approach in these segments can deliver solid returns. Renewable energy and associated industries like transmission, storage and module manufacturing will benefit from the clean energy transition.
Strong credit cycles, rising credit penetration and improving asset quality are all likely to contribute to banks and a few non-banking financial companies' (NBFCs') consistent earnings growth, making these industries attractive to Indian investors.
The IT Sector, traditionally with a long-term weightage in most portfolios, is under pressure from weak discretionary spending and longer decision cycles.
However, mid-cap IT players with strong digital capabilities and deal pipelines may outperform.
A large portion of the revenue is derived from global markets, especially the US, where corporates are delaying capex and expansion plans due to tariff and trade uncertainties.
Until global trade conditions stabilise, near-term growth is likely to remain subdued. However, the sector is on the cusp of an AI-driven transition, which is expected to unlock significant opportunities in automation, cloud and digital transformation.
As businesses worldwide accelerate their tech adoption and integrate AI into operations, dependence on Indian IT players for expertise, implementation, and support is likely to rise, reinforcing the sector's strategic importance in the global technology ecosystem.
Delayed rate cuts keep US yields and the dollar elevated, pressuring EM currencies and capital flows.
This tightens financial conditions, potentially impacting both bond and equity markets in the near term.
Foreign portfolio shifts towards emerging markets may be restrained if the dollar remains strong and US bond yields remain high due to an extended high-rate environment in the US.
Additionally, it might encourage central banks to limit rate cuts by continuing to take a cautious approach to domestic monetary easing.
Amidst the current scenario, the strategy could be to stay diversified with a tilt towards large caps and defensive stocks.
Use corrections to accumulate high-quality names with strong earnings visibility.
Maintain tactical cash reserves to capitalise on emerging opportunities.
Investors can consider adopting a buy-on-dips strategy rather than chasing short-term rallies.
While in the near term, many events are happening in August, such as GDP growth, inflation numbers, Trump's tariff decision, and Q1 earnings, which can heighten volatility in the upcoming period.
However, structural reforms, sound corporate balance sheets and strong domestic demand all contribute to India's continued resilience in its medium-term growth outlook.
So, investors might be able to better position themselves for possible upside once the momentum picks up by buying quality stocks during market corrections.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.