Trump tariffs a 'multi-fold geopolitical risk' for world economy, says ABSL AMC's Mahesh Patil

ABSL AMC's Kaustubh Gupta hoped that countries will attempt to settle the trade talks, or sign bilateral treaties soon, to settle the uncertainties.

Global equity markets are pricing in a 'multi-fold geopolitical risk', expecting more than a bilateral trade war to play out on the global arena, Mahesh Patil, CIO at ABSL AMC has said, as Trump's tariff onslaught continues to unravel before the world economy.

Both CIO Mahesh Patil as well as Kaustubh Gupta, Co-CIO - Fixed Income said the tariff rates suggest that President Trump may not be entirely be looking to use them as a negotiating tactic. "The steep rates of tariffs indicate that President Trump is inclined to use them to reset the global trade order unlike initial market expectations of using them solely as a negotiation tool," ABSL AMC's Mahesh Patil said.

ABSL AMC's Kaustubh Gupta hoped that countries will attempt to settle the trade talks, or sign bilateral treaties soon, to settle the uncertainties. India has been in talks with USA for a bilateral trade agreement with America, along with FTAs with UK, EU and other major economic regions. Not being too export-reliant has meant that the impact on India has been relatively less severe compared to Asian peers, who are also facing steeper tariffs by Trump administration. The selloff across asset classes, including crude oil, might turn out to be blessing in disguise for India, ABSL AMC said, given that the nation is a large importer of crude.

Sectoral Impact

The IT sector may not have a direct impact, however, any reduction in client spend will be seen as a negative for the business.

The Textile sector may see some re-routing of manufacturing, as the import tariff on India is relatively less severe compared to Asian peers.

India's Chemicals sector will be closely tracking the development as China, which is the world’s lowest-cost manufacturer and exporter may start to dump chemicals into India, indirectly impacting domestic companies.

ABSL AMC's note added that there is a chance of more electronics manufacturing shift out of China into India.

Mahesh Patil added that there is a likelihood of deferment of private capex, which may hurt volume growth of companies in the near quarter. However, the markets are expected to consolidate, and Patil does not expect a 'prolonged downside' from here on.

"Assuming that US may not fall into a deep recession, we also expect FII flows to return to EMs, including India, that will support equity markets," Patil added.

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