Trump tariffs: Samir Arora says biggest risk to Indian market is not tariffs applied to India but...

While investors globally are concerned over the US President Donald Trump’s upcoming announcement of reciprocal tariffs on April 2, which he has dubbed as “Liberation Day”, Samir Arora, founder and fund manager of Helios Capital, has shed light on a critical concern for Indian markets — one that goes beyond direct US tariffs on India.

Arora argues that the bigger risk to India is not trade restrictions imposed by the US but rather the overall health of the US economy and stock markets. If the US falters due to its own trade policies, the impact could be severe for global markets, including India.

“I think the biggest risk to Indian market is not tariffs applied to India but what happens to the US market and economy due to various tariffs, which then affects other markets and sectors like Indian IT,” Arora wrote in a post on X on April 1.

The Changing Narrative of Market Sentiment

Arora’s observation follows an interesting shift in investor behavior. Not long ago, global investors were reallocating funds from emerging markets like India into the US, driven by strong economic growth and higher returns. However, with increasing concerns about the sustainability of US growth, high interest rates, and potential trade disruptions, the narrative has flipped — now, the weakness in the US is perceived as a significant risk to India.

“How times change: Till recently investors were selling out of Indian market (& others) to buy into US market and now the biggest risk to India is the weakness in the US market,” Arora wrote on March 10.

Why US Market Weakness Matters to India?

The US has imposed tariffs on multiple countries, including China. These trade tensions can disrupt global supply chains, increase costs for US businesses, and ultimately slow down economic growth. If the US economy contracts due to such policies, it will have a ripple effect on global markets, including India. The interconnectedness of economies today means that even policies not directly aimed at India can have unintended consequences for Indian businesses and investors.

Impact on IT and Export-Oriented Sectors

The Indian IT sector, which derives a significant portion of its revenue from the US, is particularly vulnerable. A slowdown in US economic activity or corporate earnings could lead to budget cuts in IT spending, affecting major Indian companies like TCS, Infosys, and Wipro.

FPI and Liquidity Outflows

A weak US market often leads to risk aversion among global investors. If the US faces economic troubles, investors may shift funds into safer assets like US treasuries, leading to capital outflows from emerging markets, including India.

Macroeconomic Linkages

The US is the world’s largest economy and a major driver of global trade. If US consumption and demand slow down due to tariffs or economic challenges, it can disrupt global supply chains and reduce business opportunities for Indian exporters beyond just IT services.

The Road Ahead

While concerns about US tariffs on India remain relevant, Arora’s argument highlights the broader macroeconomic risk: if the US economy struggles, the ripple effect on India could be significant. Investors, policymakers, and businesses must closely monitor global market trends, trade policies, and interest rate movements to navigate these uncertainties effectively.

As global markets remain interconnected, India’s resilience will depend on how well it diversifies its economic strengths and manages external shocks.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.