Why Indian markets defied US reciprocal tariff threats, rebounded with 1% gain

Markets shrug off tariff talk

US President Donald Trump once again targeted India for its high tariffs, signalling that negotiations for a trade deal may not yield concessions for New Delhi on sweeping levies such as reciprocal tariffs, which are set to take effect from April 2.

This hard talk did not bother the Indian stock market participants and they rose strongly and closed the day with strongest gain over the last one month. Experts say that the tariff talk is nothing new and the US President has been talking about it for some time now. “For whatever impact they may have, it has already been factored in by the markets and it does not come as a surprise to the markets. Hence, there is no impact of the Tuesday’s announcement on the markets,” said a fund manager who did not wish to be named.

It is important to note that Asian and European markets traded strong on Wednesday. While the key indices in Germany and France were up by 3.3 per cent and 2 per cent respectively, even in Asia, the Hang Seng in Hong Kong rose 2.8 per cent and Nikkei in Japan was up in the green.“Strong global market cues led the recovery in domestic indices as talks that Trump administration could reverse some tariffs amidst the ongoing global trade tensions buoyed sentiment. Also, local factors such as increase in February PMI index, a sharp fall in rupee, and downtrend in crude oil prices triggered massive buying in the beaten-down technology, realty and telecom shares,” said Prashanth Tapse, senior VP (Research), Mehta Equities.  However, since the recovery remains fragile owing to global uncertainty and FIIs showing no signs of halting the selloff trend, market could remain volatile going ahead, he said.

Valuation concerns ebb

Many feel that since the Indian markets have already fallen significantly over the last five months after the outflow by FPIs owing to valuation concerns and worries over slowdown in the Indian economy.

Since there is larger consensus in the market around large caps trading at fair valuations now, experts say that domestic institutional investors (DIIs) are looking to buy at current levels as many of them see them attractive to pick from a long-term perspective. “The index (Nifty) had been hovering near a crucial support zone between 22,000 – 21,800, and with oscillators in deeply oversold territory, a bounce was due. Looking ahead, we expect this positive momentum to continue,” said Rajesh Bhosale, technical analyst, Angel One Ltd.

A Bajaj Broking Research report said the equity market experienced a strong rebound on Wednesday after the recent sharp decline, since value buying emerged around the key support range of 21,700-22,000. “This pullback can be attributed to several factors, including the strength in Asian markets, bargain buying in oversold stocks and value buying in blue-chip stocks. The Nifty index had been extremely oversold, having declined in 18 out of the last 19 trading sessions, making the pullback overdue from the deeply oversold zone,” it said.

Large caps stabilised: Rebound to continue?

Market participants feel that while the large caps may have stabilised at current levels and may see upward movement from these levels, there may still be some pain left in the mid and small cap segment. “The movement will, however, be stock specific as some blue chips may be available at a good bargain, but at the same time another one may be expensive. So, investors are likely to be very choosy in what they pick given that everything has fallen,” said a fund manager.

Further, a technical rebound from oversold zones helped boost investor sentiment. The Nifty’s Relative Strength Index (RSI) appeared to have bottomed out, indicating a potential revival.