Market hoping Trump's tariff threat a negotiation strategy; optimistic about lower rates eventually: Dikshit Mittal
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, Senior Fund Manager,, says the market anticipates that Trump's tariff threat is a negotiation strategy, similar to past trade deals with other countries. There's hope for eventual tariff reduction through further discussions. However, if the threatened tariffs are implemented, significant global supply disruptions , inflation, and economic slowdown could occur, but the market is optimistic about a favorable deal with lower tariffs.The market is still hoping that this is not a done deal, and that this is a negotiating tactic from the US. It has happened with other countries also, like initially the higher tariffs were threatened and then some kind of trade deal was finalised. So, we are also hoping that maybe in the end, it may take some more rounds of discussions, but the eventual outcome should be lower than this kind of tariff. But if this tariff goes through, it can create large supply disruptions globally even in the US and it can create huge inflation as well as slowdown. But looking at all the factors as of now, the market is still pricing in that there will be some kind of a favourable deal and eventually tariffs will be lower than what has been threatened yesterday.Global uncertainty, at least for the near term, is here to stay till we get some more clarity on tariffs. Even on the geopolitical level also, there has been much news maybe in the last one, one-and-a-half years. In the near term, we do not see any indication that this volatility will subside, but at the same time, in the last one year, the Nifty 100 or Nifty 50 returns have been more or less flattish. So, the market has been trying to consolidate, digest whatever news is coming in and at the same time some earning growth has been coming in.We have grown around high single digit last year, and to that extent, valuations are now also becoming slightly cheaper compared to one year ago. At the same time, in the last one year, we have seen a large fall in the domestic bond yields and that is also leading to some kind of higher multiples into the equity. Near-term volatility is expected to stay, but at the same time, downside seems protected as of now because large segments of the market have not gone anywhere but earnings have been coming through more or less largely in line.We may still spend some time within this range, and that is the take as of now. But if one is ready to take a more than one year kind of view, there is still money to be made but one has to be slightly more reasonable in terms of return expectations at least for the next one year.: Within the textile segment, we have a large market share in the home textile space, maybe bedsheets, towels and all. So, the companies that are present in this space have 60% to 70% exposure to the US as a percentage of their sales. And if the threatened tariff goes through, it can hamper their growth as well as margins materially. But at the same time, on the apparel side or other segments where we are more inclined towards the European or UK markets, the companies present in those segments may not be that much impacted anyway.Textile is a very low margin sector and companies are working on thin margins and so they do not have the capability to absorb this kind of tariff hike. So, eventually it has to be passed on to the end customer but in the meantime, this kind of tariff uncertainty has created volatility. These companies say orders are getting deferred. Eventually, if these kinds of tariffs are passed on, textile companies will have a tough time till clarity comes in.Chemical is more B2B in nature and the kind of value chain where we are present, especially in the specialty chemicals, we are more into the intermediates, technicals or AI space where the value of these ingredients is very small as compared to the end product price and chemicals, especially the speciality chemical also requires some kind of technological edge, economies of scale, and the largest competitor is China.We need to see what kind of tariffs are put on China also. So, chemical companies are relatively better placed compared to textile and we are mostly exporting chemicals to European markets and most of the listed companies have 15% to 20% exposure to the US and large part of the sales happen domestically as well as to the European and other geographies. Looking at the kind of value addition that we do in chemicals because the margins are pretty high, that sector is slightly better placed as compared to textiles.
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