By Vikas V Gupta, CEO and Chief Investment Strategist at OmniScience Capital
The global financial markets have entered a turbulent phase as US President Donald Trump reintroduced his aggressive tariff policies, targeting over 50 countries. Dubbed “reciprocal tariffs,” these measures have sent shockwaves through international trade, causing widespread volatility in equity markets.
However, in a dramatic turn, Trump announced a 90-day pause on his sweeping tariffs for all countries except China. This development could provide temporary relief, with equity markets expected to rebound by 5-10 percent following the pause.
As investors reassess their portfolios, the key question remains: How can one survive and thrive in this uncertain environment?
Understanding the Tariff Impact
Trump’s tariffs vary significantly, ranging from 10 percent on imports from deficit countries to over 50 percent on Chinese goods. India, a key trade partner, faces a 26 percent tariff on select products. This move has triggered retaliatory actions from Canada, the EU, and China, setting the stage for an extended trade war.
The immediate fallout has been severe:
• S&P 500 and Nasdaq-100 have plunged 20 percent, officially entering bear market territory, before rebounding by ~10 percent on the pause announcement
• FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) have suffered a 25% decline, with a rebound of 10 percent.
• India’s Nifty 50 has seen a 12 percent drop from its peak; closed, likely to rebound 5 percent+
• This is just the first act in a long play, with several such episodes making markets volatile over the next several quarters.
This volatility stems from supply chain uncertainty, inflation risks, and corporate profitability. Companies reliant on imported components face tough choices- absorb higher costs and reduce margins or pass them on to consumers and risk revenue declines.
Winners and Losers in a Tariff-Dominated Market
Market volatility does not impact all businesses equally. A clear distinction is emerging between companies that will weather the storm and those at risk of being wiped out.
1) Strong Global Companies: Large, well-capitalized firms with diversified supply chains may see short-term pain but will emerge stronger post-tariffs, gaining market share as weaker competitors fail.
2) Weak Global Companies: Highly leveraged firms with thin margins and negative cash flows are most vulnerable. Many could disappear within 2-4 years, unable to withstand the financial strain.
3) Domestic Winners: Some local companies may gain a temporary market advantage due to reduced foreign competition. However, long-term fundamentals matter, and weak domestic players may struggle once tariffs are lifted.
For investors, this means focusing on companies with strong balance sheets, robust pricing power, and market dominance while steering clear of firms burdened with high debt and weak profitability.
Banks, particularly PSU banks, are expected to remain on the investor's radar. Additionally, sectors like Power and Housing Finance are likely to attract interest. Furthermore, Defence and Railways are anticipated to continue being favoured by the market.
Railway Infrastructure: A Safe Haven in Uncertain Times
Amidst the global chaos, one sector stands out as a resilient investment opportunity—Railway Infrastructure. Unlike industries directly affected by tariffs, India’s railway sector benefits from robust government spending and long-term economic growth trends.
Key factors driving this growth:
• Massive Budgetary Support: The Indian government’s railway capex has skyrocketed from Rs 16,000 crore (FY11) to Rs 2.5 lakh crore (FY25). In the next five years, an additional Rs 15-20 lakh crore is expected to be allocated.
• Expanding Market Potential: More than 70 percent of railway funding is directed towards construction and equipment, creating enormous opportunities for companies in Engineering, Procurement, and Construction (EPC), as well as machinery and component manufacturers.
• Favourable Valuations: Many railway-related stocks are trading at attractive valuations, with a portfolio P/E in the low 20s.
The railway sector’s total addressable market (TAM) is nearly five times the current combined revenue of companies operating in this space. This makes it a compelling long-term investment for those looking to hedge against trade war risks.
Investment Strategy: Adopting a Scientific Approach
With market uncertainty at its peak, investors must prioritize capital preservation while positioning themselves for long-term gains. Here’s how:
1) Focus on Strong Balance Sheets: Companies with low debt, strong cash flows, and competitive advantages are better equipped to navigate the tariff turmoil.
2) Seek Undervalued Opportunities: Market corrections create attractive entry points for quality businesses. Investors should look for stocks trading at a discount to intrinsic value.
3) Diversify Across Sectors: While railways provide stability, exposure to other non-tariff-affected sectors like domestic consumption and renewable energy can enhance portfolio resilience.
4) Avoid Highly Leveraged Companies: Firms with high debt and weak profitability face the greatest risk in a prolonged trade war. Caution is advised when investing in these businesses.
5) Think Long-Term: The tariff era will eventually pass, but businesses that survive it will likely capture more market share and deliver superior returns.
The Final Word: Turn Uncertainty into Opportunity
As Warren Buffett famously said, “Uncertainty actually is the friend of the buyer of long-term values.” The current market turmoil presents a rare opportunity for patient investors to acquire fundamentally strong businesses at discounted prices.
While global markets reel from Trump’s tariff tantrums, India’s railway infrastructure boom stands out as a high-growth, low-risk investment avenue. By focusing on resilient companies, scientific investing principles, and sectoral opportunities, investors can not only survive but also thrive in these challenging times.
Our advice is clear—don’t panic, stay scientific, and invest for the long term. Those who do will be well-positioned to reap substantial rewards when market stability returns.
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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