Trump's 25% tariff and penalty a negotiation tactic, real levy seen at 15%, says Ajay Bagga

The bigger risk is on Russian oil. If a 100% tariff is imposed, trade ties could get severely hit. But that’s unlikely—India can't be singled out without doing the same to China. Also, if Russian oil—9 million barrels per day—goes off the global market, there’s no replacement. Saudi Arabia has only 2 million barrels of spare capacity. That would spike oil prices globally and hurt the US most. So politically, it's complicated.

How should investors and traders navigate this environment over the next few months?

Investors can continue their SIPs and long-term strategies. But for traders, this is a difficult market. News-driven moves are sharp and unpredictable—oversold conditions can trigger violent short-covering rallies, like we saw Monday.

Stick to domestic stories. Avoid sectors with high US exposure, textiles, gems and jewellery, leather, chemicals, seafood, engineering exports. The silver lining is pharma, which seems to have a carve-out for now and has done well.

What about FII flows? They are already net sellers this month and India Inc’s earnings haven’t been too encouraging either. Will outflows intensify?

Some marginal outflows may accelerate. The rupee has also weakened recently—and RBI seems to be allowing it. There’s been no aggressive intervention. We might see a 5–6% depreciation this year instead of the usual 3%. That’s one way to counter tariffs, like China did in 2019, but FIIs aren’t leaving. Their holdings still stand at $850–900 billion. While they're selling in the secondary market, they are actively participating in IPOs and QIPs. It’s a bipolar market—selling one side, subscribing on the other.

Are there any encouraging technical or macro cues you are watching?

Yes, three things. We have spent 10 months below the all-time highs of Sept 2024. Historically, markets bottom out after 8–10 months of correction. We may be near that reversal. Secondly, India’s relative underperformance vs EM peers—typically bottoms out at 23–24%. We are now around 21%, so a rebound could be near. Lastly, MSCI valuation comfort—forward P/E after today’s cut is nearing 21x, which is the 5-year average. Also, government spending was low from March to September last year, so year-on-year earnings in the upcoming quarter will look much better. That adds to the bullish setup.

What is your tariff impact estimate? Do you expect a climbdown from the 25%?

Yes, I expect it to settle around 15%. Initially, we thought it would be 10%, like the UK. But Trump’s outlier posture pushed expectations higher. Still, I believe 15% is more realistic.

Which sectors are you liking or avoiding in this market?

I like infrastructure and power. Transmission stocks are doing very well. Banks and NBFCs saw some disappointment in Q1, but they’re fundamentally strong and operating in a growing economy. RBI’s liquidity measures still have legs. We need a big push in deregulation, GST cuts, and easier startup rules to boost domestic consumption. Export-led growth won’t work in today’s protectionist world. Building a strong local market is the real answer.

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