Amid a tariff war, stay cautious and don’t be swayed by a 10% correction: Siddhartha Bhaiya

However, Siddhartha Bhaiya, managing director and chief investment officer of Aequitas Investment Consultancy, thinks a one-day reaction barely scratches the surface of the move’s impact. With the trade war just kicking off, it is too soon to call which markets will come out on top.

“But one thing is certain that this does not look like benefiting anyone," he said.

Bhaiya anticipates a further correction in the coming months, and thinks this could just be the beginning of a trade war. In such uncertain times, he prefers to stick with cash and other safe-haven investments.

He advises staying cautious amid the added uncertainty from US tariffs and warns against getting swept up by a mere 10% correction.

Also Read: Trump's tariff tantrum: Asian markets rattled, India fares better

“The probability of identifying a good long-term investment still remains exceedingly low in the current markets, as valuations are still way above our comfort zone," said Bhaiya, who has kept equity exposure limited to just 10% of the firm’s assets under management (AUM) worth around ₹5,100 crore.

Edited excerpts:

With the US President imposing reciprocal tariffs on over 180 countries, how are your clients reacting? Are they concerned about the potential for increased volatility?

Our clients are extremely happy with the cash call we took in the second half of 2024, which has helped us navigate these uncertain times by protecting capital. Our team wrote a very interesting note just before the tariff announcements and what impact it could have on the global economy. It was very well received by not just our clients but everyone who read it. Yes, the increased uncertainty is a point of concern, but our investors remain positive that we will be able to navigate this for them.

We have outperformed our Asian peers since the announcement—why is that? How is India placed compared to emerging market (EM) peers?

The tariffs announced are significant and will have a negative impact on the global economy. India cannot decouple itself from the global economy, and running a high trade deficit does not bode well for the country. A single-day market reaction to the announcements does not capture the significance of the move. Further, this seems like a start of the trade war, and it is too early to predict which markets will perform relatively better. However, one thing is certain: this does not look like it benefits anyone.

Do you think foreign institutional investors (FIIs) will make a quicker comeback after this announcement?

FIIs have multiple investment opportunities to evaluate globally, and India being an uncertain market they might still be reluctant. In such global uncertainty, FIIs should ideally shift their focus towards perceived safer assets or undervalued geographies, and at these levels India probably does not fit that bill. Further, there is expectation of global retaliation which FIIs will probably wait for before diving into investment opportunities.

Which sectors are likely to take the biggest hit?

Manufacturing: With the tariff announcement being a planned one, stockists in the US have already built up inventories for the foreseeable future. Normalization of channel inventory might take a while, which will adversely impact growth in the manufacturing sector. Further, China being one of the countries most impacted due to high tariffs, it might end up dumping in global markets making domestic players suffer.

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IT: The current tariff structure announced will have a highly inflationary impact, leading to an overall slowdown in consumption in the US. This might adversely impact companies’ investments in technology sectors, leading to a slowdown in IT.

Any sectors we can cash in on after this tariff news?

As mentioned above, this might just be the start of a trade war, and in such uncertain times, we are happy to stay in cash and other safe-haven investments.

Could these announcements trigger a currency war? What’s your take on where the US dollar and Indian rupee are headed?

Depending on how trade pans out going forward if exports from India go down significantly, it might have a negative impact on the Indian rupee.

Also Read: Trump’s reciprocal tariffs: India braces for economic ripples

The dollar may lose some ground, but the INR is expected to weaken against it. Meanwhile, gold, along with the Swiss Franc, euro, and yen, will likely appreciate.

What is the road ahead for Indian equities in FY26?

As a fund house, we still maintain our stance that Indian equities seem overvalued, and the margin of safety that we seek is still not present. Though the market has seen a short-covering rally, we anticipate further corrections in months to come.

Now, that we have pulled back about 10% from the peak, are there enough money-making opportunities in the market?

The probability of identifying a good long-term investment still remains exceedingly low in the current markets, as valuations are still way above our comfort zone. With the added uncertainty that tariffs bring, we feel it is a better strategy to remain cautious and not get carried away with a meagre 10% correction.