Domestic equity benchmarks Nifty and Sensex were trading higher in Wednesday’s trade after the US President Donald Trump said India and the United States of America were continuing negotiations to address the trade barriers between the two nations.
Trump said he looks forward to speaking with “very good friend” Prime Minister Narendra Modi in coming weeks, hoping for successful conclusion of trade deal.
Kotak Institutional Equities said India could accede to some of the US’s demands on tariffs and market access and conclude the India-USA FTA fast. “A prolonged standoff can have deep implications for India’s economy and invite more ‘penalties’ from the US, going by recent comments from various US political leaders,” Kotak said.
Stock investors can stay cautious for now. If past experience is to go by, the market should judge President Trump by his actions and not words, said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
“Investors should understand that the major challenge that the market is facing now is the high valuations, particularly in the broader market, which will constrain any potential rally. India is hugely underperforming other markets now,” he said.
Data showed Hang Seng and Kospi delivered 51 per cent and 31 per cent returns in the past one year against a flat Nifty.
Kotak said India may still not open its agriculture markets to imports for political reasons. It believes a second option could be that India reduces its oil imports from Russia with some sort of an understanding with Russia by using its strong historical relationship. This Kotak said could provide leeway for India and the US to reset their relationship.
Lastly an end to the Russia-Ukraine war could reduce the US’s ire against India for India importing Russian crude oil, Kotak said while adding that India cannot rely on this option given that there is no visibility on the end of the war.
India and the US have had deep economic relationships for a long time with large bilateral trade in both goods and services, huge investment from US investors and a large number of US companies operating in India.
But India and the US have not had strong political engagement historically with India choosing a non-aligned stance notwithstanding more cooperation in the past few years (both are part of The Quad) and the US being more aligned with Pakistan historically, Kotak said.
US took umbrage about India’s oil imports from Russia and consequently imposed an additional 25 per cent import tariff, over the base 25 per cent base tariff, and raised issues with India’s tariffs and non-tariffs barriers on US exports.
“India’s geopolitical alignments can be viewed as the four corners of a quadrilateral with one corner (India) being in touch with only two of the other three corners (China, Russia, US) at any given point in time,” Kotak said.
Vijayakumar said massive sustained selling by FPIs triggered by high Indian valuations is the principal reason for the recent market underperformance.
“FIIs who sold in India and moved money to other markets have gained. Therefore, they might do it again. A change in this trend will happen when indications of a recovery in earnings emerge,” he warned.