Can Donald Trump's 90-day tariff truce bring risk-on sentiment back for real?

The US markets endured a significant decline overnight

Indian markets opened with strong gains on April 11, buoyed by a relief rally following US President Donald Trump’s announcement of a 90-day pause on reciprocal tariffs for all countries except China. However, analysts remain cautious, suggesting the move is unlikely to spark a near-term risk-on trade in India, as uncertainty around tariffs and concerns over global growth persist.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, pointed to the unpredictability of Trump’s tariff moves and the relatively expensive valuation levels in India as ongoing hurdles for any sustained risk-on rally to take root.

“India’s valuations have certainly become more reasonable following the steep correction we have seen so far this month, but they are still far from being considered cheap,” Vijayakumar explained. “If markets do witness a bounce, it is likely to be driven by short-covering rather than any genuine shift in investor sentiment. Beyond that, the overall outlook remains murky.”

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Independent market analyst Ambareesh Baliga echoed similar caution, noting that the erratic nature of Trump’s trade policy announcements does not create the kind of stability investors typically seek to justify a return to riskier assets.

“For meaningful and sustained growth to materialise, a stable and predictable policy framework is absolutely essential,” Baliga said. “The direct impact on India is expected to be relatively limited, given that exports to the US account for only 2.1 percent of the country’s GDP. However, the indirect effects could be more significant - particularly through a decline in corporate confidence, which may further dampen risk appetite. Additionally, any negative sentiment in US markets could spill over and influence investor sentiment in India as well," he noted.

Just over a week ago, following Trump’s initial announcement regarding reciprocal tariffs, global markets experienced a sharp sell-off amid fears of rising inflation and a looming slowdown that could potentially tip the US economy into recession.

However, that wave of panic was briefly replaced by optimism after the US administration’s subsequent announcement sparked a powerful rally across global indices. Even so, the optimism proved fleeting as investors quickly reverted to risk-off positioning, rattled once again by the persistent ambiguity surrounding trade policies. The US markets endured a significant decline overnight, with similar weakness spreading across Asian markets by morning.

The trade conflict between the US and China remains far from resolved. Trump announced a steep hike in tariffs on Chinese imports to 145 percent,  following China’s retaliatory imposition of 84 percent tariffs on goods imported from the US.

According to Vijayakumar of Geojit, these recent shifts in the global trade dynamic could potentially benefit India over the medium term.

“What I clearly see now is that the 'Sell India, Buy China' strategy that many foreign institutional investors have been pursuing might start to fade,” he observed. “Given the ongoing pressure on China’s economic growth and corporate earnings, there’s a good chance that global capital flows could start to favor India again. Stocks that have traditionally been popular among FIIs—such as HDFC Bank, Bharti Airtel, ICICI Bank, and Bajaj Finance—could see renewed interest.”

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