The Markets Crash Again On Trump Policy Uncertainty
The stock markets fell sharply as uncertainty over Donald Trump’s tariff plans on India rattled traders
On Episode 487 of The Core Report, financial journalist Govindraj Ethiraj talks to Priyanka Kishore, Founder & Principal Economist at Asia Decoded as well as Prashanth Agarwal, Partner at PwC.
(00:00) The Take
(05:19) The markets crash again on Trump policy uncertainty
(07:29) Oil prices ease off on increased supply triggers
(09:37) The Trump presidency: The Asia view
(16:13) Revenue growth slows in India as construction industry drags
(18:24) Indirect tax expectations
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Good morning, it's Wednesday, the 22nd of January and this is Govindraj Ethiraj, headquartered and broadcasting and streaming like always from Mumbai, India’s financial capital.
The Take
Were you the same person 4 years ago?
This was the response to a question on what could potentially change for the financial markets with the new Donald Trump presidency that took charge on Monday in freezing Washington DC.
My poser was to a Dalal Street money manager who of course is programmed to generally look at the positive side of things. Combine that with some experience and a few market cycles and you have a good chance of landing close, if not on target.
So where are we a day after the inauguration ?
Trump has already unleashed a series of executive orders that are predominantly focussed on the internal and cultural issues.
While the key economic ones or threats are still in abeyance which is of course not helping any one but we will come to that.
A useful and quick analysis from Axis Capital says nearly four-fifths of President Trump’s first 45 executive orders focus on appointments, cultural issues like freedom of speech & DEI diversity, equity, inclusion, and changes in processes, including rescinding 78 executive actions taken 2021-25.
What about the ones with economic impact ?
Well they include immigration, energy, and pulling out of multilateral forums like the global tax deal, WHO and the Paris agreement on climate change.
In many ways, all were expected though may not have been top of mind like the tariff threats of the last few months.
The key economic threat that has kept global economies guessing is obviously sweeping tariffs on all countries including India.
On which there already is a tactical retreat saying they will study it and then move. There is a renewed threat of 25% tariffs on Canada and Mexico to nudge them to stop the flow of undocumented migrants. Of which by the way, India is a healthy contributor at this point.
So he has promised sweeping tariffs, annexation of foreign lands and deals with whoever is willing to strike them.
But who could have guessed that the first deal would be to breathe life into a Chinese social media platform suspected of stealing data from American users and banned on grounds of being a national security risk.
Incidentally, last month it was revealed by the Wall Street Journal that the US Government was taking aim at TP-Link, a Chinese technology company that dominates the home and small-business router market in the U.S., amid mounting national security concerns.
TP-Link apparently holds a 65% market share and federal authorities were investigating TP Link following reports of its routers being exploited in cyberattacks allegedly linked to Chinese state actors according to media reports.
A recent Microsoft report said compromised TP-Link devices were used in ransomware operations, fueling concerns about the company’s role in facilitating cyber threats.
So bottomline, the hardware and software that is dominating America in more ways than one are controlled by China.
And looks like it will broadly stay that way for now.
This by the way is the opposite of what you would have heard on the campaign trails.
So which promise will the Trump administration hold ?
Well, like I said earlier, there are already evident tactical retreats.
Since Tiktok has got a reprieve, even a temporary one to allow the Chinese company to find a 50% American owner, then it's quite likely other areas like tariffs are also on some kind of hold, at least in the case of China.
If that is the case with China, then what sense does it make to slap tariffs on India ?
So then almost everything, except for perhaps illegal immigration on which some dramatic measures have been announced, is open to negotiation.
And on immigration, with Trump confidant Elon Musk batting for H1B visas, quite likely the regime could be relaxed instead of being jettisoned !
Illegal immigrants will be hounded for sure. But businesses need them too, the only problem being these businesses are more traditional service and manufacturing industries rather than rocket launching enterprises. So maybe they won’t have a voice.
And finally, what about the stockmarkets who have been on the tenterhooks gearing for a major global trade war which does not look like it will happen, at least not in the way it was threatened a month ago.
Well, it's all priced in, says this money manager.
Which is true but what has been priced in is a definitive move and not uncertainty.
Markets like definitive moves in any direction and not uncertainty which is what he has reintroduced now by staying silent on tariffs.
As a businessman, President Donald Trump should know better.
And perhaps therein lies the answer to the question.
Has he changed in the last 4 years ?
And that brings us to the top stories and themes
The markets crash again on Trump policy uncertainty
Oil prices ease off on increased supply triggers
The Trump presidency: The Asia view
Revenue growth slows in India as construction industry drags
Indirect tax expectations.
Markets Fall
The stock markets fell sharply as uncertainty over Donald Trump’s tariff plans on India rattled traders.
While Trump’s present tariff threats from February 1 are more to do with immigration flows from Mexico and Canada and are thus targeted at them, the possibility of blanket trade tariffs across the world is still lurking.
The benchmarks took a beating yesterday with the 30-share BSE Sensex falling 1235.08 points to close at 75,838.36 after some wild swings including having opened positively in the morning.
The NSE Nifty50 closed at 23,024, down 320.10 points.
The broader markets took a hit too, with the Nifty Midcap100 ending 2.31 per cent lower at 53,834.95, while Nifty Smallcap100, closed with a fall of 2.28 per cent at 17,456.50.
The good news if you choose so, was that gold prices have now risen to a 2-month high as the U.S. dollar weakened and investors bought into gold, a totally expected phenomenon given that gold is a far more certain investment in uncertain times like this.
Spot gold climbed 0.6% to $2,722.83 per ounce reaching its highest level since Nov. 6 and nearing the all-time high of $2,790.15 set in October, Reuters reported.
The dollar index slipped 0.7%, holding close to a 2-week low hit in the previous session, making bullion more attractive for other currency holders.
Meanwhile Trump on Monday revoked a 2021 executive order signed by his predecessor Joe Biden that sought to ensure half of all new vehicles sold in 2030 were electric, Reuters also reported.
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The rupee lost most of its early gains on Tuesday to close largely unchanged after the U.S. dollar recovered when President Donald Trump said he was thinking about imposing tariffs on Canada and Mexico.
The rupee closed at 86.5775 against the U.S. dollar, down from its close of 86.5675 in the previous session.
The dollar index rose 0.5% after it touched a two-week low on Tuesday.
Oil Prices Ease Off
And here is our India Energy Week segment.
Even as the threat of tariffs continues to hang over countries like India, it does appear that oil prices are facing downward pressure because of potential increase in supply.
Of course there are other changes in the equation.
India could increase its purchases of U.S. oil and gas after U.S. President Donald Trump's announcement to maximise U.S. oil and gas production.
"There is a possibility of more energy purchases between India and the U.S.," Reuters reported India's Oil Minister Hardeep Singh Puri telling reporters on the sideline of an event.
"More U.S. energy coming into the market is welcome."
Trump on Monday said he would immediately declare a national energy emergency, promising to fill up strategic reserves and export American energy all over the world.
India imports over 80% of its crude oil requirements and has been affected by a spike in global oil prices and shipping rates after the US under president Joe Biden imposed sweeping new sanctions targeting Russian insurers, tankers and oil producers.
India’s oil minister said there was no shortage of oil in the market.
Earlier, Russian oil accounted for more than a third of India's imports last year, but U.S. sanctions are tightening supply, pushing India back to traditional Middle East sources and the US.
Meanwhile, Reuters is also reporting that Indian refiners have issued
issued tenders this week seeking crude oil after disruptions in Russian supply.
The tenders come more than a week after Washington’s sanctions which disrupted supply from the world's No. 2 producer and tightening ship availability.
Technical bids are due later this week, while commercial bids will be
Brent crude futures were down 65 cents, or 0.81%, to $79.5 per barrel
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This segment was supported by India Energy Week 2025 scheduled from February 11-14, 2025, in New Delhi and you can register for the same using the link in the show notes.
The Asia View on Trump
Analysts world over are debating and discussing what the Trump administration’s likely trade policies could do to the world in coming months.
There is the China view on this matter and there is the rest of Asia including India.
Remember, not all economies are performing equally and then there is currency which in some ways unites Asian economies because all of them are under pressure thanks to an ascendent dollar.
I reached out to Priyanka Kishore, Founder & Principal Economist of Singapore based macro consultancy Asia Decoded and began by asking her how she was interpreting the first raft of policy moves from the Trump administration through an Asia lens.
INTERVIEW TRANSCRIPT
Priyanka Kishore: Of course, markets are busy celebrating right now. We did not get any tariffs in the inauguration but I would add a cautious tone. We have been saying for a while now that universal tariffs will hurt the US and they are likely to take a more targeted approach and from where I sit, I see it as the administration buying some time but not saying they will not do tariffs.
So as far as Asia is concerned, which is a more open region of the world in terms of trade, many economies are more trade orientated, I don't really think those risks have disappeared yet. We can have our CNY celebrations but post that we will come back to these growth and tariff risks.
Govindraj Ethiraj: The other point is really the dollar which has been going up and down but it's been strong and now seems to have slightly eased off and obviously all Asian currencies have been under pressure including the rupee which is going through its own strategic response on whether to let it float a little bit or not. So how are you seeing the currency response particularly across Asia?
Priyanka Kishore: I think I agree with you on that, that the dollar has given up some of its weakness overnight. It's very linked to the US policy outcomes, right? All the policies that the Trump administration are proposing, they are of broad dollar strength.
Even if they say that they want a weaker currency, that's not how it works. And to that extent, I think this is a year of Asian currency weakness. In the region, we have usually had managed weaknesses.
I'm still not looking for sharply falling knives out there but India I think is an interesting one to watch out for because we've kept the currency in a de facto peg for so long, then we have let it go now. But I still think I'm looking for FX weaknesses between three to five percent which is not that concerning in an environment of dollar strength.
Govindraj Ethiraj: What other signals are you taking away Priyanka? Like for example, a lot of exports into the US from Vietnam or Cambodia are originally Chinese companies. The US government has talked about separating that whatever source Chinese investment versus local investment and so on.
So are you seeing those as issues going onwards? And I think the larger question is what's the framework of mind that businesses or analysts like yourselves are approaching the next few months?
Priyanka Kishore: I think there is a huge debate and especially on Vietnam as to whether it's a beneficiary or whether it's going to bear the brunt of this administration. To my mind, I see three things. One is of course the direct bilateral trade balance with the US.
The second is the bilateral trade balance with China which this government is going to scrutinise pretty closely. So the origin of imports coming in, how much of those imports are actually intermediate inputs into your manufacturing versus you just rerouting finished goods from China, which is what you're referring to. And also the currency anger, right?
The currency manipulator watch list. So there are two, three ways they're going to go after the other countries in terms of determining tariffs. And when I put these in perspective, of course China is there.
But after China to me, Vietnam, Japan and South Korea, these seem to be the most vulnerable to tariff risks.
Govindraj Ethiraj: And are you seeing any trends early or projected on the geopolitical front? I mean, do you see any shifts in alliances or new blocks in this region again?
Priyanka Kishore: Actually from where I am sitting and the people I'm speaking to, there seems to be a sense of relief on the geopolitics. It does seem that the Trump administration is considered more transactional or what you would have heard ample number of times by now. And to that extent, maybe less interfering into, you know, how countries conduct their geopolitical relations, the softer relations.
So it does seem like, you know, they would be less interfering when it comes to Taiwan. Also, you know, speculations on when Taiwan going to be a negotiation tool are largely underplayed, at least here in Singapore. So geopolitically it does seem that because this government is less focused on human rights and those kinds of issues, it might actually be a better year for Asia.
Govindraj Ethiraj: And how are you seeing overall growth prospects? And I mean, within the region, I mean, are most countries in the same secular growth matrix right now? Are there big differences?
Priyanka Kishore: One thing you can definitely look at is who is more exposed to global slowdown, who is more exposed to a Chinese slowdown and who is more driven by domestic road drivers. So, you know, India sits at a sweet spot there despite, you know, some consumption challenges domestically, but it's a domestic problem. It is less exposed to, you know, what is happening in terms of tariffs or what is happening in terms of a China slowdown.
Not a complete, you know, shield there as you could have some knock on employment impact on exporting industries. But if I were to rank, so it's at that end of the spectrum. On the other hand, you know, the country where I'm sitting, Singapore, very open, very exposed to China.
So it is probably one of the most downside risks. I've already spoken about Vietnam. And the Indian economy is probably somewhere in the middle.
So I would say that Singapore, Vietnam, Northeast Asia in general, more exposed to downside risk, Southeast Asia in the middle. And then India probably has more concerns domestically, but external wise is better place.
Govindraj Ethiraj: Right. And last question, if I were to just come back to currency, I mean, so are you seeing a stable dollar through the year? I mean, or at least the foreseeable part of the year?
Priyanka Kishore: I think any dollar weakness would be short lived. So in an earlier life, I was an FX strategist, and if I were to borrow from those years, I would say it's a buy on dip story for the dollar this year. You know, Asian central banks have growth risks to contend with.
So in general, I think the rate cycle is turning here. Right. So it's not even like you have active rate hikes coming in to support the currency against strengthening dollar.
You're off dollar strength, and that has implications for how the rate cycle will proceed. Our FX results will be managed and what will happen to currencies.
Govindraj Ethiraj: Priyanka, thank you so much for joining me.
Priyanka Kishore: Thank you for having me.
Revenue Growth Slows for India Inc
Revenue growth of India Inc likely declined 80-90 basis points (bps) on-year to 4-6% in the three months ended December 2024, Crisil Intelligence has said in a new report.
This is based on an analysis of 400+ companies that account for almost half of the listed market capitalisation.
The report says this is because the construction segment, which accounts for a fifth of overall revenues, dragged because of an extended monsoon and slower recovery in government spending after the general elections, while the industrial commodities and investment-linked segments had a subdued outing.
However, on a sequential basis, revenue improved to 5.2% compared with 2.4% in the July-September quarter.
Profitability is seen up 40-50 basis points (bps), driven by export-linked sectors, with earnings before interest, tax, depreciation and amortisation (Ebitda) likely rising ~8%.
Crisil says among the top 10 sectors that account for ~70% of overall revenue, four likely saw Ebitda margin expansion, led by export-linked sectors such as IT services and pharmaceuticals, investment-linked sectors such as power, and construction.
Steel, automobiles, telecom, FMCG, cement and auto components sectors may have logged margin contraction.”
Revenue of the construction, industrial commodities and investment-linked verticals — collectively accounting for ~38% of our sample set — likely dipped 1%.
The automobile sector’s revenue likely grew ~7% due to a rise in the volume of cars sold, supported by healthy festive demand and higher realisations due to a change in the product mix and increasing share of exports.
Elsewhere, it is all growing but slower than anticipated.
Retail sector growth continued, supported by festive sales, said Crisil adding that in fast-moving consumer goods (FMCG), the staples segment is expected to log 6-8% revenue growth driven by price hikes amid muted demand.
While demand recovery in hinterland is expected to sustain, the urban side is expected to remain subdued next quarter as well.
What Lies Ahead for Indirect Tax?
The discussion may have boiled down to multiple tax rates on different types of popcorn but there is no doubt that simplification the Goods and Services Tax (GST) regime by reducing the number of tax slabs is critical,
Indirect taxes contribute approximately 60% to total tax receipts.
And any changers here obviously reduce tax burden on consumers and increase consumption, at least potentially.
There are a raft of expectations on the taxation front as well, including on imports and then demand for amnesty schemes for pending litigations.
The Union Budget is being presented on February 1.
I reached out to Prashanth Agarwal, Partner at PwC and I began by asking him what were the key expectations from his camp on indirect tax.
INTERVIEW TRANSCRIPT
Prashanth Agarwal: Yeah on the GST front I think I looking at how do they further plan out on the GSTAT perspective in terms of beginning of that. Would they make more simplifications around the law and they brought in certain compliance related changes which are invoice management system related changes which came out on the GST whether they bring it as part of the law that one can require. Some of the aspects around how the procedural aspects on the GST will be taken up that is something that can look out.
I don't think major changes will be made on the GST front because as we have discussed in the past it is the council which really takes the calls. Those get ratified through the bill if it is required to be undertaken from an amendment standpoint. So nothing which would be surprising I feel from a GST standpoint but yeah I mean one can make a wish list of whether they would start including goods which have not been included from an amendment standpoint naturally etc.
But we know it that it has yet not been decided in the council so it won't happen in this meeting. So there is a laundry list of wish list but unfortunately because most of it has not been approved upon from a council perspective may not happen.
Govindraj Ethiraj: So the other element of indirect tax is obviously customs. That is one area where there are lots of expectations.
Prashanth Agarwal: Sure so I think on the custom side I would divide it into two three parts. One from a procedure standpoint there are certain compliances which the industry has been pushing for simplification. So like there is a compliance which is required to be done for related party imports which is known as special valuation branch procedure.
So they are the industry have sought for simplification because there are a lot of delays in terms of getting those special valuation branch proceeding orders undertaken. Second is around simplification of the authorised economic operator scheme which is basically helping through the v-channel imports. So there also the industry has made representation and looking for some kind of simplification.
Third is around sector specific benefits like airports there has been asked that whether benefit like project import can be extended to them. So that's something which is being discussed about. Fourth would be around the exemptions.
So we know that the FMRAD in the past made it clear that the exemption which are there in custom would be there for two years and would be revisited. So a lot of sectors are seeking renewable of those exemptions as well. Then of course benefits to solar industry EV because these are the themes which are playing out well in terms of investments will continue to be sought after from the industry's perspective.
And lastly because there are a lot of litigations which are coming up on the custom side which have been dragging on. That again is a piece where the industry would want to see some kind of relief. As we have seen the trend the government had brought in in the last budget which was from the income tax perspective then even in GST there has been amnesty scheme and the similar ask is there on the custom side to take care of the past litigation.
Could there be something like an amnesty scheme which can be really brought out. So those are big themes which may play out as you move along. And last if I can make FMRAD made a declaration about simplifying the customs law while has really not seen much on that.
So what are the steps taken on it and where do we see moving from that perspective would be good to hear from an FMRAD perspective.
Govindraj Ethiraj: Two quick questions. One is you mentioned exemptions. Is there an illustration of what kind of exemption that people want to be continued or removed.
And the second is are you seeing anything or is there a clamour on anything on the tariff front itself on the actual tariffs.
Prashanth Agarwal: Yes I think on the exemption front there are exemptions provided to automobile industry in the EV sector. So that's something which obviously on the parts and components side companies would want it to continue because the ecosystem is still getting developed. The other would be around the whole sector of EMS which is already there.
So there again on the components essential components something would be required. Also on the solar side wherever possible not the exemption but at least the lower rate of duties if they can continue is something that the industry continues to look forward for. Solar already there have been lot of increase in the rates which have happened and of course they would want to see wherever there are benefits left over.
Because we are now battery storage system which is coming up. You know you have been hydrogen which is being talked about. So on those new areas of investments companies semiconductor as an industry there are investments which are being made are areas where at least concessional rate or the exemptions is something that they would look at.
Simplifying the process of claiming the exemption is also something that is there. So there are procedural aspects which at times create a hindrance in terms of claiming those exemptions. So there again there has been an ask from the industry to see if that can be taken care of.
Some of the other sectors I would say MRO there already the exemptions have been there. So they would want to see if those can continue on their perspective.
Govindraj Ethiraj: Right and nothing on absolute tariff itself right?
Prashanth Agarwal: Yes again on the tariffs the expectation was that some of the announcements one can expect because the tariffs have been increased over years. And as you see since you are saying that some of your ecosystem on the manufacturing side has matured you would want to make the industry more competitive. So from that perspective the tariffs are something where you would want them to be more normalised than increased further.
So I mean that's what the expectation would be that you are making it a more free competitive market so why not.
Govindraj Ethiraj: Prashant thank you so much for joining me.
Prashanth Agarwal: Thanks as always.
