Tariff gut punch sends markets reeling worldwide

Dalal Street witnessed its worst opening since March, 2020 which marked the start of a months-long pandemic lockdown in India. After a 5% lower opening, the Nifty and Sensex on Monday traded in the red throughout the day before settling 3% lower, their worst show since 4 June, 2024.

There was no place to hide: All of BSE's sectoral indices fell. The damage wasn't limited to the frontlines either. The NSE's mid-cap and small-cap indices fell a sharper 4%, illustrating the pain in the broader market. On the NSE where over 3,000 companies are listed, a staggering 645 hit 52-week lows. For every stock that rose, eight fell. The market's fear index shot up over 65% during the session, before closing 53% higher.

Also see: Decoding today's market crash in charts: Hard truths and signs of resilience

“The last couple of days' fall in the market is certainly giving one flashbacks of covid days," said Nilesh Shah, managing director, Kotak Mahindra AMC. However, he pointed out that Indian markets haven’t reacted as sharply as some of the other markets, including the US.

Global markets

Asian markets cratered, with Hong Kong's Hang Seng index plunging 13%, its worst since the Asian financial crisis nearly three decades ago. This was followed by Taiwan’s Taiex which fell 10%, Japan’s Nikkei (8%), Mainland China’s CSI 300 (7%), and South Korea’s Kospi (6%), painting a picture of widespread panic across the region. The Nifty ended the session 3.2% lower at 22,161.60, while the Sensex slid 2.9% to 73,137.90.

In Europe, the Euro Stoxx 50, representing top blue-chip companies across 11 eurozone countries, slipped 4%. Meanwhile, US Dow futures dropped nearly 700 points, indicating the agony isn't over yet. Investors recalled Black Monday -- 19 October1987, when the Dow Jones Industrial Average plunged around 23% in a single session, triggering a global meltdown.

Unlike 1987, when India was shielded by its limited global exposure, it is no longer on the sidelines. While the Indian economy not heavily export-oriented, it is not fully insulated either, said Hari Shyamsunder, vice-president and senior institutional portfolio manager, emerging markets equity, India, at Franklin Templeton. “It remains exposed to second-order effects from a possible global growth slowdown and increased geopolitical tensions."

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Shaymsunder explained that if tariffs are implemented and sustained, it could lead to higher prices for US consumers, disrupt global supply chains, and weigh on corporate capital expenditures. A global growth slowdown, a weaker investment cycle, escalating trade tensions, and a broader risk-off sentiment in equities will hurt Indian stocks, he added. For India, exports constituted about 21.4% of GDP in FY24.

The rupee fell 60 paise or 0.7% to 85.8350 per dollar, its worst single-day fall since 13 January. Most Asian currencies edged lower, falling 0.2-1.2% against the dollar amid broad market pressure.

For Nifty, the 21,800 mark is the next crucial level to watch, said Kkunal Parar, vice-president at Choice Equity Broking. “If the index manages to hold this level over the next two sessions, the market may regain some footing. But a breach might open the floodgates for a sharper correction," he cautioned.

Expersts say

According to Kotak's Shah, the last few months of correction could also be a reason why Indian stocks have not reacted as negatively as others, as the current levels of valuations are reasonable.

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Bloomberg data showed that the Indian market's valuations have dipped below long-term averages. The Nifty 50's P/E ratio now stands at 18.1x and the Sensex at 19.49x, both below their 20-year averages of 20.83x and 19.68x, respectively, signalling that markets may be inching towards sanity.

While some investors may be tempted to pull out of equities amid rising uncertainty, Swarup Anand Mohanty, vice-chairman and CEO of Mirae Asset Investment Managers (India), sees this as a window of opportunity to lean in and not pull back. While India’s market has held up better than others, pockets of overvaluation remain, and any bad news could spark a sell-off, said Mohanty. Still, he advises not to overread the dip.

Despite the sharp fall, Indian equities are not a bargain yet, but Mohanty believes India is getting close. He sees 2025 as a year to accumulate, not chase returns.

BSE data showed that FIIs offloaded Indian equities worth ₹9,040 crore on Monday, while DIIs stepped in with net purchases of ₹12,122 crore, providing some cushion to the sell-off.

Also read | Will lower tariffs lure back FPIs from other emerging markets?

“India remains a growth story in a world full of crises," Mohanty said, adding currency stability is key for foreign investors to return. He believes this is the moment for domestic investors to act—because once FIIs re-enter the market, the early gains might already be off the table.

Shah believes investors will use this phase to rebalance portfolios and step up equity allocations, with flows likely to pick up pace in the coming weeks. “We would also expect more money getting allocated to equity in the coming months as the current volatility settles and contours of bilateral trade agreements gets clearer between US and other countries," he said.

Dinesh Thakkar, chairman and MD of Angel One, said phones were "buzzing" at his firm with retail investors enquiring about whether this was the right time to “buy", but Anand K. Rathi, co-founder of Mira Money, a south based distributor of mutual funds, claimed that significant redemptions by investors in direct plans happened amid Monday's crash.

Direct plans allow an investor to directly invest in a mutual fund's units without an intermediary, lowering transaction costs. This has been offered by new-age online brokerages. Against this, investors in regular plans invest through a distributor, broker or banker, who gets a distribution fee from the AMC.

Apart from this, retail investors who borrow from brokers to directly invest in stocks faced margin calls from brokers on Monday.

Investor focus will soon shift to the Reserve Bank of India's commentary in the upcoming monetary policy meeting. Adding to that, the March quarter earnings season will be another key trigger on the radar. Attention will also turn to the US Federal Reserve, which is set to hold a closed-door meeting on Monday morning, raising speculation about the central bank’s next move amid rising global jitters. If the Fed goes ahead with a rate cut and US markets finish in the green, there is a fair chance Indian markets could see a snapback on Tuesday.

(Inputs from Ram Sahgal and Srushti Vaidya)