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Mint
01-08-2025
- Business
- Mint
Why does a stronger US dollar spell trouble for Indian equities?
MUMBAI : Prolonged periods of a strong US dollar are often associated with underperformance in emerging market equities. In the month leading up to June end, when the US Dollar Index (DXY) fell 1.85%, the MSCI Emerging Markets Index—benchmark for global investors seeking exposure to developing emerging market economies—surged nearly 6%. But as the dollar index steadied through 28 July, EM gains also moderated, with the MSCI EM Index rising only 3.04%, according to Bloomberg data. Whether this poses a risk to foreign inflows into EM stocks is now anybody's guess. Prolonged periods of a strong US dollar are often associated with underperformance in emerging market equities. In the month leading up to June end, when the US Dollar Index (DXY) fell 1.85%, the MSCI Emerging Markets Index—benchmark for global investors seeking exposure to developing emerging market economies—surged nearly 6%. But as the dollar index steadied through 28 July, EM gains also moderated, with the MSCI EM Index rising only 3.04%, according to Bloomberg data. Whether this poses a risk to foreign inflows into EM stocks is now anybody's guess. EM inflows rose modestly to $967 million in the week ended 25 July from $173 million the previous week, yet well below the $2.3 billion average seen over the past four weeks, according to Elara Capital's 25 July report. How does the US dollar affect EM flows? When the dollar weakens, EMs attract more investor flows. The MSCI EM Index jumped about 17% in 2025 till 28 July against the DXY's 9.1% decline. 'A softer dollar was a major tailwind for inflows into EMs," said Sunil Jain, vice president at Elara Capital. However, the DXY has slightly steadied over the past two weeks and even saw a recovery last week, putting pressure on EM sentiment, he explained. Foreign investors offloaded Indian equities worth ₹96,972 crore between January and July 2025, a sharp reversal from the net inflow of ₹30,813 crore seen during the year-ago period. The DXY picked up momentum over the past three weeks, rising 0.69% in the week ended 7 July, 0.64% in the week ended 18 July, and 1.5% in this week ending 1 August, reflecting continued strength in the greenback. 'The rebound in the dollar can act as a drag on EM flows," said Nilesh Shah, managing director, Kotak Mahindra AMC. Aren't there other factors to consider? There are. Shah explained EM flows are a function of multiple factors, including currency. He said long-term investors also consider earnings growth, valuation, and current account or balance of payment position to allocate money. EMs attract money 'more on growth and less on currency view", he clarified. Even Ashish Gupta, chief investment officer of Axis Mutual Fund, said the weakening US dollar may not be the sole catalyst behind inflows into EMs. He pointed out that recession fears and trade-related uncertainty in the US have largely receded, reshaping the investor sentiment and thereby strengthening the case for investments into the US markets. 'The key US indices are again nearing their all-time high now, which suggests that money may be again gravitating back towards the US, potentially slowing inflows into EMs." On Monday, Nasdaq and the S&P 500 hit an all-time high of 21,202.00 and 6,401.07 points, respectively. What's the outlook? The DXY broke below its three-year support level of 100 in April 2025, triggering a surge in EM inflows. And a move back above the 100 level could threaten this trade, said an 18 July Elara Capital report. In its monthly letter to investors, the global investment firm UBS suggested reducing excess dollar exposure. 'We expect lower interest rates, combined with fears about political interference, to affect the US dollar," it said in a 1 August note. Even American investment firm JP Morgan highlighted in its 14 July note that while tactically, in the short term, the US dollar could firm up a bit, 'we believe it will remain under pressure in the medium term, in the second half, and that has historically led to imported inflation moving up".
Mint
31-07-2025
- Business
- Mint
Market holds nerves on hope of Taco trade, rupee lowest in 5 months
A surprise 25% tariff imposed by the US on Indian exports, coupled with threats of penalties for buying Russian oil, rattled equity market investors early in the session on Thursday. However, strong buying helped the market stabilize, reflecting cautious optimism over tariff easing—a potential policy change that analysts call a 'Taco trade', shorthand for 'Trump always chickens out'. The benchmark Nifty 50 opened 200 points lower and then recovered, but eventually ended the session 86 points lower than the previous close at 24,768.35. The day, the last Thursday of the month, also marked the expiration of the July derivatives series, leading traders to roll over positions amid the ongoing uncertainty. "Today's market action suggests that investors are bracing for a Taco trade," said Nilesh Shah, managing director at Kotak Mahindra AMC. 'The market is hoping that Trump will reverse the tariff proposal keeping in mind the strategic interests of both the US and India. But whether or not that will happen is anybody's guess, given the mercurial nature of Potus,' Shah said. 'If indeed he does a Taco trade will play out, if not the volatility will increase," he added. The bellwether Nifty 50 closed above its crucial support zone of 24,500-24,600 points, which has held for many sessions, indicating that the markets are not overly worried. But if the uncertainty on tariffs persists, a breaching of this level cannot be ruled out, said Akshay Chinchalkar, head of research at Axis Securities. Chinchalkar added that until Nifty 50 tops the resistance point of 25,020, it is likely to remain in the lower band of 24,450 -25,020. 'Mixed global cues and lack of immediate details (on US tariffs) made traders adopt a wait-and-watch stance on Thursday,' said Trivesh D., chief operating officer at Tradejini. The markets had baked in a tariff of 15-20%, so the 25% levy--coupled with an unspecified penalty for buying Russian arms and energy--had led to an expectation of at least a one percentage fall in the indices, analysts said. The more benign decline has increased hopes of a bounce-back. "I think we are looking at the 24,500 support holding and can see a potential bounce toward 25,500 next month if that plays out," said Kruti Shah, quant analyst at Equirus. Though the equity market held its nerve, the rupee continued with its fall against the US dollar from Wednesday which marked its biggest decline in five months. The local currency ended 17 paise lower at 87.6 to the dollar on Thursday. "Due to Trump's nasty surprise, there is concern on the current account, which has queered the pitch for the rupee," said Sujan Hajra, chief economist at Anand Rathi. Hajra said the worst case is for the rupee to weaken by another 2.0-2.5 units in the short-term before the Reserve Bank of India intervenes. Foreign institutional investors have continued to sell shares through the month. They net sold shares worth ₹ 5,538.19 crore on Thursday, while they sold ₹ 1,236 crore worth of index futures. The market may react on sentiment in the short-term, but it is 'unlikely to experience a major correction or trigger panic,' said Siddarth Bhamre, head of research (institutional equities) at Asit C. Mehta Investment Intermediaries Ltd. Among sectoral indices, the Nifty Pharma fell the most, by 1.3%, followed by the Nifty Metal Index that declined 1.2%. The new US tariffs are likely to have a limited impact on corporate earnings, and it is primarily likely to hit a small set of export-oriented companies, who may have to absorb part of the price increase, said Geroge Thomas, fund manager at Quantum Mutual Fund. These companies represent only a small portion of the market and will, thus, not impact the overall earnings, he added. A few sectors such as pharmaceuticals and textiles may initially face pressure on their margins, as companies may have to bear a small part of the tariff cost at first before they can pass it on to their customers, but there will be no structural impact, said Vikas Khemani, founder of Carnelian Asset Advisors. Khemani said he sees the overall impact to be limited since the tariff for India was lower than that on China, and as customers rarely switch supply channels solely due to price factors, especially in the 'sticky sectors'. 'We estimate a 30-50% of the burden of tariff to fall on Indian exporters and the rest on US importers and consumers. However, any weakening of the rupee would partially offset the margin pressures of Indian exporters in rupee terms,' a report of Anand Rathi Research had said on Wednesday. Tariffs at this level could shrink India's big merchandise trade surplus with the US, its top export market, the report said. India's GDP growth projection could take a mild hit of 30-40 basis points if the tariff remains at 25%, the Anand Rathi report added. The country's GDP growth is projected at 6.5% for FY26, as per the Reserve Bank of India.
Time of India
31-07-2025
- Business
- Time of India
Markets will hope for a 'TACO' trade if better senses prevail: Nilesh Shah of Kotak Mutual Fund
Live Events Markets will hope for a 'TACO' trade if better sense prevails, said Nilesh Shah , Managing Director at Kotak Mahindra AMC, after U.S. President Donald Trump announced new tariffs on Indian exports.'China is defying U.S./UN sanctions on Iran oil, Myanmar and Russia trade, and North Korea support. The size and competitiveness of an economy have their advantages,' Shah added that the unilateral imposition of tariffs should ideally push Indian policymakers toward more growth-supportive reforms. India's best deterrent remains the size and competitiveness of its GDP, he President Donald Trump announced a 25% tariff on Indian exports starting from August 1. Trump further hinted at unspecified penalties linked to India's continued energy and military purchases from Russia. This follows the earlier 26% reciprocal tariff imposed on India on April expert says it is difficult to see how we reached a situation where we have 25% tariff + penalty and he had noted that Trump may be a messiah for Indian trade and investments and it seemed like a great opportunity to win in global markets.'A 25% rate leaves us higher than Vietnam, Indonesia, and other competitor economies from Asia/EU. India had a potential chance to get a 10% rate from the US.. imagine the positive impact of that to the Indian economy and trade and investments,' said Arvind Chari, Chief Investment Strategist, Q India UK, affiliate of Quantum Advisors should be deeply disappointing for the government and the foreign policy to have ended in this situation and with Trump there are always way outs and hope India can find one to get a better deal, Chari further expert believes that the current tariff announcement is much beyond trade and has far bigger geopolitical implications on the ongoing bilateral relations between India and US since Operation Sindoor and roots of this aggression lie in - four factors include, firstly Indian denial of US role in ceasefire with Pakistan. Secondly, sustained buying of Russian crude, followed by continuous status of Russia as a key defence supplier and lastly growing strategic overtures of BRICS and attempts at forging a RIC (Russia, India, China ) block which might disturb US geopolitical interests in SE Read | 13 equity mutual funds with over Rs 1,000 NAV offer up to 24% CAGR since their inception 'We don't rule out some counter measures by India on US exports and the path to a trade deal is not easy given sticky issues like agriculture, dairy and defence. We expect an increase in uncertainty and market volatility in the near term. We believe companies which have higher US exports might see increased volatility,' said Amnish Aggarwal, Director - Research, Institutional Research, PL Capital.'Although the current earnings season has not shown any meaningful recovery in domestic demand, hopes of festival season demand revival will increase interest in domestic stories for the time being. Domestic consumption, hospitals, select consumer, Infra, capital Goods, AMC and private banks will act as a defensive hedge during these volatile times,' Aggarwal adds.: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Economic Times
31-07-2025
- Business
- Economic Times
Markets will hope for a 'TACO' trade if better senses prevail: Nilesh Shah of Kotak Mutual Fund
Following U.S. tariffs on Indian exports, experts suggest India should focus on growth-supportive reforms and leverage its GDP size. Markets will hope for a 'TACO' trade if better sense prevails, said Nilesh Shah, Managing Director at Kotak Mahindra AMC, after U.S. President Donald Trump announced new tariffs on Indian exports.'China is defying U.S./UN sanctions on Iran oil, Myanmar and Russia trade, and North Korea support. The size and competitiveness of an economy have their advantages,' Shah added that the unilateral imposition of tariffs should ideally push Indian policymakers toward more growth-supportive reforms. India's best deterrent remains the size and competitiveness of its GDP, he noted. Also Read | MF Tracker: UTI Mid Cap Fund turns Rs 10,000 SIP to nearly Rs 1.62 crore in 2 decades US President Donald Trump announced a 25% tariff on Indian exports starting from August 1. Trump further hinted at unspecified penalties linked to India's continued energy and military purchases from Russia. This follows the earlier 26% reciprocal tariff imposed on India on April 2. Another expert says it is difficult to see how we reached a situation where we have 25% tariff + penalty and he had noted that Trump may be a messiah for Indian trade and investments and it seemed like a great opportunity to win in global markets. 'A 25% rate leaves us higher than Vietnam, Indonesia, and other competitor economies from Asia/EU. India had a potential chance to get a 10% rate from the US.. imagine the positive impact of that to the Indian economy and trade and investments,' said Arvind Chari, Chief Investment Strategist, Q India UK, affiliate of Quantum Advisors should be deeply disappointing for the government and the foreign policy to have ended in this situation and with Trump there are always way outs and hope India can find one to get a better deal, Chari further mentioned. Another expert believes that the current tariff announcement is much beyond trade and has far bigger geopolitical implications on the ongoing bilateral relations between India and US since Operation Sindoor and roots of this aggression lie in - four factors. These factors include, firstly Indian denial of US role in ceasefire with Pakistan. Secondly, sustained buying of Russian crude, followed by continuous status of Russia as a key defence supplier and lastly growing strategic overtures of BRICS and attempts at forging a RIC (Russia, India, China) block which might disturb US geopolitical interests in SE Asia. Also Read | 13 equity mutual funds with over Rs 1,000 NAV offer up to 24% CAGR since their inception 'We don't rule out some counter measures by India on US exports and the path to a trade deal is not easy given sticky issues like agriculture, dairy and defence. We expect an increase in uncertainty and market volatility in the near term. We believe companies which have higher US exports might see increased volatility,' said Amnish Aggarwal, Director - Research, Institutional Research, PL Capital.'Although the current earnings season has not shown any meaningful recovery in domestic demand, hopes of festival season demand revival will increase interest in domestic stories for the time being. Domestic consumption, hospitals, select consumer, Infra, capital Goods, AMC and private banks will act as a defensive hedge during these volatile times,' Aggarwal adds. (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
Business Recorder
31-07-2025
- Business
- Business Recorder
Indian stocks set to open lower after Trump threatens 25% tariff, penalty
Indian shares are set to open lower on Thursday after U.S. President Donald Trump threatened a 25% tariff on goods imported from the country starting August 1 and an unspecified penalty. The 25% figure would single out India more severely than other major trading partners, and threaten to unravel months of talks between the two countries. After announcing the tariffs, Trump said the U.S. is still negotiating with India on trade. The Gift Nifty futures were trading at 24,685 points as of 7:58 a.m. IST, indicating that the Nifty 50 will open about 0.7% lower than its previous close of 24,855.05. 'Despite the unpredictable policy making of the U.S., the market was expecting a tariff deal to work out as longer-term U.S.-India strategic interests are aligned,' said Nilesh Shah, managing director of Kotak Mahindra AMC. Analysts expect sectors such as textiles, pharmaceuticals, and automotive components, which are key Indian exports to the U.S., to be impacted the most by higher tariffs. Along with the 25% tariffs, Trump said U.S. will also impose a penalty on India partly due to trade issues and partly because of India's involvement in the BRICS group of developing nations, which he described as hostile to the U.S. While the 25% tariff is slightly higher than the 15% to 20% that the market was anticipating, what requires close monitoring is the structure of the additional penalty, said Feroze Azeez, joint CEO of Anand Rathi Wealth. Foreign portfolio investors have been sellers in India in thirteen of the last 14 sessions, partly driven by uncertainty over the U.S.-India trade negotiations. Meanwhile, the U.S. Federal Reserve left interest rates unchanged on Wednesday as widely expected, but Chair Jerome Powell dampened expectations for an interest rate cut in September.
