Benchmark indices slid by more than 1% on Wednesday after China imposed reciprocal tariffs on the US heightening concerns of a trade war.
Benchmark indices slid by more than 1% on Wednesday after China imposed reciprocal tariffs on the US heightening concerns of a trade war. Indian benchmark indices ended the session on Wednesday in the red with the Sensex shedding 351.56 points, or 1.05%, to end at 33,019, while the Nifty slipped 116.60 points, or 1.14%, to close at 10,128. China on Wednesday said it would levy 25% tariffs on imports of 106 US products including soybeans, automobiles, chemicals, and aircraft, in response to proposed American duties on its high-tech goods. The move’s impact was seen across global markets with Asian indices closing the session in red—Hang Seng was down 2.2%, Jakarta Index 1.15%, FTSE-Malay 1.88% and the Shangai Composite 0.18%. European markets also opened weak and at the time of filing this report, the FTSE was down 0.47% and DAX 1.25%. Market participants opinion was divided on the impact of China’s move on the Indian markets with some expressing concerns and others dismissing today’s correction as a knee-jerk reaction. “Whenever there is uncertainty in the international markets there is a tendency for domestic markets to correct. This adds one more dimension to the uncertainty. It raises the uncertainty level dramatically. We do not know where the tit-for-tat trade war will stop,” said UR Bhat, MD, Dalton Capital Advisors. When asked whether the volatility in markets will continue he said, “Markets have been in the 200-300 range after the 105 corrections we had some time ago despite the negative news flows.
And it’s not exactly very volatile. The issue is that as this trade war progresses and the level of uncertainty increases, you will certainly see some volatility. At the same time if you find monsoons normal, March quarter results are better, and if domestic flows continue to equities markets, you will find a level which is not very far away from where it is now. It will find support at these levels or slightly lower.” Siddhartha Rastogi director, Ambit Asset Management argued, “The US till now had supremacy on technology innovation artificial intelligence robotics while China was seen as the labor-oriented economy. The new diktat from China where they wish to become the largest manufacturers of robots of all kinds, including medical and industrial, and are poised to produce the maximum number of EVs has threatened US. Thus this battle of leadership, which had US as the leader for decades, will likely hot up. India, on the other hand, is a domestically driven economy with low dependence on high tech. Also these tariff wars don’t impact importers or exporters as India stays at a sweet spot of quality with human intervention with the manufacturer of goods and services having a large domestic market in case of global failure.” Regarding volatility in Indian markets, Rastogi said “We had seen in the past from 2002 till 2007 when global and domestic economies were both buoyant and witnessed rising interest rates, the trajectory of the market was north but markets witnessed deep cuts on specific days. With liquidity tightening in the system one will see quality playing out well, rigged and hyped stocks will take a beating with acute bouts of volatility with steep recovery.”