Aniruddha Sarkar, the CIO and Portfolio Manager at Quest Investment Advisors believes the US will eventually strike a deal with India and both sides will give away some ground.
According to him, Trump cannot jeopardise trade with the world's 4th largest economy and largest populated country. It would harm US more than India in the medium to long run, he said.
He feels a big risk factor which Mr Trump is completely ignoring now is that high-tariff countries will find a way to gang up against the US. And that would hurt US growth and have a similar impact on global growth, he said in an interview with Moneycontrol.
Considering the tariff revisions effective from the August 1 deadline, do you think most of the major announcements have already been made? What are the potential implications for US growth and inflation, as well as for global economic growth?
So far, we are hearing more of country specific tariff numbers which itself are subject to changes. For example, Canada which was earlier subjected to 25% is now suddenly at 35% tariff. Also, what is to be seen is that how non-trade factors become deciding factors like India's support of Russia and continued trade with Russia.
Hence, difficult to say where the final ball will stop at. Having said that definitely there would be impact on US consumer inflation which might raise its head after a few quarters. Moreover, a big risk factor which Mr Trump is completely ignoring now is that high tariffed countries will find a way to gang up against the US and that would definitely hurt US growth and see similar impact on global growth.
With the consistent delay in the India–US trade deal and the imposition of a 25 percent tariff on India after a long wait, do you think the US is now desperate for a deal with India?
The US had come to the negotiation table with India thinking it would be an easy cakewalk but then got served a hard bargain so it’s evident they are bit frustrated with it. India stood its ground and didn’t relent is very praiseworthy. Nevertheless, US will eventually strike a deal with India and both sides will give away some ground, because you cannot jeopardise trade with the world’s 4th largest economy and largest populated country. It would harm US more than India in the medium to long run and they understand that.
Do you see any major implications of the 25 percent tariff on India’s government balance sheet?
With US exports contributing just 2% of our GDP, I don’t see the increased tariff impacting government balance sheet in any way in the medium to long term. Global trade is finding a new equilibrium and so would India with its FTA and Trade Agreements with other countries also find new markets to cater to.
Moreover 25% tariff seems a median rate when we see what various large trading partners have been charged with. All the more the rates seem very fluid and not permanent as we have seen in some recent cases.
Do you expect the government to take additional measures to support the economy, which is likely to feel the impact of the new tariffs?
I don’t think there is any such major direct big impact which is expected overnight for which the government would be required to step in with some support measures. Meanwhile the government has committed to continue the trade talks with US to find better future for our MSME and Small businesses in sectors which could get see some adverse impact. Looking for alternate trading partners and markets is the best way the government can support the affected industries if it happens.
Considering that 25 percent appears to be the final ceiling, do you think the tariff-related news is now behind us? What could be the next major triggers for the market?
I don’t think the 25% tariff is the final number we would hear in the coming weeks. Things coming out of Washington continues to be very fluid and numbers change every day. Equity markets are gradually factoring in such tariff-based news flow and gradually the major trigger for the markets would move to earnings growth in India Inc. which has been the biggest worry for last few quarters.
Earnings upgrades across various industries and market cap companies would become the next major trigger for the markets.
Do you believe the RBI has done enough to support economic growth and will likely hold interest rates in the next few meetings to observe the impact of previous policy actions?
RBI has once again shown its proactive actions in cutting rates ahead of the US Fed and has also infused a lot of liquidity in the economy through various policy announcements in the last several months. This has definitely provided the much need gunpowder to take the economy higher as negative macro headwinds globally recede. Further rate cuts from these levels are possible as RBI along with government is focussed on driving the lending growth which could drive the capex cycle again.
Is there a risk of FII outflows if the ongoing monetary easing does not translate into a meaningful pickup in credit growth in the coming months?
FII outflows could happen not because of monetary policy but because of US economy continuing to do better than anticipated and dollar strengthening. At the same time, I am confident that we would see a revival in stronger private capex upcycle in the next four to six quarters and that would drive the credit growth in the system.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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