Some short covering likely, but tariff flip-flop to weigh

Mumbai: Indian equities head into Monday with measured optimism after a US Supreme Court verdict declared US President Donald Trump’s tariffs illegal, setting off a fresh turn in the trade narrative. Trump followed up with a 10% levy, later raising it to 15% on all countries. Effectively, this is lower than the rates agreed earlier this month, but the fresh uncertainty around tariffs, along with simmering tensions between the US and Iran are likely to keep any optimism under check.

“The framework reached between India and the US earlier this month was already neutral, but now, since there is a question mark on those tariffs as well,” said A Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC. “The market is likely to see some short covering action, but the gains are not expected to be outsized. The upmove could be in the 1% range.”

Last week, the Sensex and Nifty rose as much 0.4% in rollercoaster trading as Brent crude futures firmed up, staying above the $71 mark on Friday, on fears of a potential US military strike on Iran.

The market has remained volatile for most of February, even after India and the US signed a trade deal that brought tariffs down to 18% from 50%. The higher tariffs by the US on Indian imports were seen as a key concern for the stock market before that.

While the tariffs are now seen even lower at 15%, the move does not ensure a runaway rally immediately.

“The lowered tariffs from 18% to 15% is expected to be neutral from an equity market perspective. It remains unclear whether the contours of the India-US trade deal that was anticipated to be signed soon will be renegotiated,” said Sunny Agrawal, head of Fundamental Research, SBI Securities. “Investors will have to brace for extreme volatility due to frequent changes in policy stance and pursuant macro and sector-specific impact.”
Balasubramanian said the initial knee-jerk reaction may give way to consolidation as investors look to earnings and currency cues for direction. “In terms of valuations, the markets are not very expensive nor cheap, but the animal spirits are missing due to lower nominal GDP numbers on account of low inflation and investors awaiting an earnings upgrade,” he said.