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Informist, Wednesday, Aug. 6, 2025

 

By Anjana Therese Antony

 

MUMBAI – Wednesday was yet another muted session for Indian equities after the Reserve Bank of India's plain-vanilla monetary policy and no signal of a rate cut anytime soon. This not-so-surprising reaction of the market comes despite US President Donald Trump's new tariff threats to India on ground that India buys a lot of crude oil from Russia which the US is not really happy about. 

 

While it is natural for anyone to raise eyebrows about the widespread optimism related to near-to-medium term returns from the domestic market, experts continue to stand their ground; that India will be a favourite pick among emerging markets and that it is not a dead economy. "Services activity is showing signs of momentum, a good monsoon will help agriculture growth and rural demand. As a result we continue to remain positive on the growth outlook," said Sonal Badhan, economist at Bank of Baroda. 

 

Global markets, including India, have mostly recovered from "Trump tantrums", as analysts call it, and US tariffs are expected to have limited impact on India's economic growth. In April, domestic benchmark indices Nifty 50 and the Sensex had hit 10-month lows after Trump's tariff threats raised fears about a likely recession in the US and a spillover impact on the rest of the world. These indices have since risen smartly and are not expected to fall to these levels again in the near term even under a worst-case scenario, research analysts said. The Nifty 50 Wednesday closed at 24574.20 points and the BSE Sensex ended at 80543.99 points, up 13% from the low and still 6.5% off their all-time highs.

 

The RBI's Monetary Policy Committee Wednesday retained the policy repo rate at 5.50?ter a higher-than-expected 50-basis-point cut at its meeting in June. Since Trump's announcement of a 25% tariff on India last week, there was chatter in the market that the apex bank has more room to cut rates to tackle the possible pressure on economic growth and inflation. But the RBI did not budge from its previous approach and retained the policy rate, stance, and GDP estimates. Though there was a slight disappointment in the equity market following the RBI's interest rate announcement, experts said the market has been surprisingly resilient compared to global peers. 

 

VALUATIONS, EARNINGS

Despite the Indian equity market valuation remaining higher than its long-term average, anlaysts are not worried about a major correction. The Nifty 50 is trading around 21.7 times the 12-month forward price-to-earnings, which is 5% higher than its long-period average. The optimism is supported by sustained inflow from domestic institutional investors, retail participants, and high net-worth individuals even though foreign institutional investors are offloading shares. Expectation of a better monsoon, benign inflation, and better demand in both urban and rural areas are also supporting the bulls, they said.

 

During Jan-Jul, foreign investors have net sold Indian equities worth INR 253 billion, compared with net purchases of INR 46 billion of shares in the year-ago period. Meanwhile, domestic institutional investors net bought domestic equities worth nearly INR 384 billion, double the INR 186 billion they had bought in the same period last year. 

 

However, not everyone is bullish about foreign inflows into Indian equities or about the current valuations. Foreign inflows are expected to be very modest in the coming months, said Dhananjay Sinha, chief executive officer and co-head of institutional equities at Systematix Group.

 

Earnings growth is roughly around 4-5% and it could be flat as well, he added. "So the thing is, if you do not have earnings growth, then valuation becomes more expensive...Ultimately growth has to happen. If growth doesn't happen, you may see market being very sideways," Sinha said. He expects better earnings growth only when commodity prices fall. 

 

TAN'TRUMPS'

US President Trump going back and forth with tariffs in the previous few months has increased the fog around his administrations' trade policies. "With Donald Trump, one can never be sure. He is one of the most inconsistent politicians," said V.K. Vijaykumar, the chief investment strategist at Geojit Financial Services, when asked about the chances of the US implementing the new tariff on India. 

 

While domestic growth can shrink a little due to tariff, Vijaykumar does not expect the GDP to fall below 6.2% in FY26, which is just a little lower than the RBI's estimate of 6.5%. "Even then, India will be by far the fastest growing large economy in the world and not a dead economy," hesaid. 

 

The US announced a 25% tariff and an additional penalty, which is still unspecified, on India last week. This week, he has threatened "substantial" tariffs on India for buying Russian crude oil. He has been pressurising India to reduce crude oil import from Russia. India currently meets about 35% of its crude oil requirement through Russian imports which are at a cheaper price. This is sharply higher than the 2.5% of total imports that Russian crude oil imports accounted for before it invaded Ukraine. Reducing cheaper oil imports from Russia can put pressure on India's exchequer and India has said it will prioritise what suits its "national interests and economic security".

 

While Trump claims that India is fuelling the "war machine" Russia, the US continues to buy certain goods such as uranium hexafluoride for its nuclear industry, palladium for its electric vehicle industry, and fertilisers as well as chemicals from the same Russia. "So this is pure double standards...That means his arguments are not based on science. It is based on ignorance about American trade with Russia," Vijaykumar of Geojit said.

 

Trade negotiations between the US and India are still going on. "...we can expect further reduction in the tariff burden. We expect GDP growth to average close to 7.5% in the next five years," Badhan of Bank of Baroda said. It is also unlikely that India will be able to provide a blanket-free access to Indian markets to the US, considering it has to protect its farm and dairy sectors. Larger concessions can be expected on imports of industrial goods, alcohol, cars, energy, and defence goods, Badhan said.  End

 

US$1 = INR 87.73

 

Edited by Akul Nishant Akhoury

 

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