A possible India-US trade deal will keep the sentiment well-hydrated and create a healthy floor for Indian equities, but does not change Indian fundamentals materially, said P Krishnan, Managing Director & Chief Investment Officer – Equity Asset Management at Spark Asia Impact Managers in an interview to Moneycontrol.
He finds it hard to believe that earnings in India will get a fillip from that - and valuation concerns have to do with earnings.
According to him, the US markets do not look good from here. "A correction is already underway. There can be a further drawdown in the US market based on its 2026 outlook wherein the lagged effect of the ill-advised tariffs will hit the US," he said. Here are edited excerpts:
Do you expect the India–US trade deal to be announced within the next month, given the recent positive statements from President Trump?
While any timeline forecasts can be tricky with the current US administration and its predilections, there is a high probability that the deal will be struck before end 2025. India has reduced oil imports from Russia and that seems to have removed the main irritant anyways.
Do you anticipate the final tariff rate to be around 20 percent, similar to those in other Asian economies?
Yes. It should be closer to 20% - could even be lower by a bit.
Could the announcement of the India–US trade deal push Indian equity markets into uncharted territory?
While the sentiment will get boosted and the market may mark a new high, the Indo-US trade deal does not change Indian fundamentals materially. We find it hard to believe that earnings in India will get a fillip from that - and valuation concerns have to do with earnings.
The event is also coinciding with a possible cool-off in global markets, particularly the US. A possible deal will however keep the sentiment well-hydrated and create a healthy floor for Indian equities.
Do you see a high probability of a correction in US equities?
A correction is already underway. The US has massive issues with its K-shaped recovery and now a potential nasty overhang from tariffs and over-enthusiasm towards AI. There can be a further drawdown in the US market based on its 2026 outlook wherein the lagged effect of the ill-advised tariffs will hit the US. US markets do not look good from here.
Is the Federal Reserve now more concerned about the labour market than about inflation?
The US Fed is boxed into a point between a rock and a hard place. Labour market trauma will be accentuated by the disruption created by tariffs. And that disruption is inflationary. The US Fed has no magic wand. As the economy slows down, they will be forced to cut rates but that does not mean that the inflation outlook will get better.
Given the currently low inflation levels, do you expect the RBI to cut interest rates by 25 bps in each of its next two meetings?
There may be one more cut. However, the low inflation in India is in part due to very soft oil prices and tepid domestic demand overall. We do not believe the market rates can come down materially from here.
Do you expect the premiumisation trend to continue?
We have a K-shaped recovery in India and in select pockets, the rising wedge of the K will support premiumisation. There is no visible trend across the board. However, in certain segments, demand will continue to be driven by increased purchasing power which is a direct effect of the shape of the recovery.
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