Trump's tariff tantrums send markets on a topsy-turvy ride

In addition, the White House stressed that the “baseline” 10 percent tariff on imports from most other nations would remain in effect during the 90-day pause. This follows an earlier executive order of tripling the tariff on smaller parcels from China valued at less than $800 from 30 percent to 90 percent effective May 2—a move that affects an estimated annual $40-45 billion of largely e-commerce imports.

On April 10, Indian markets were shut for trade due to Mahavir Jayanti. At the beginning of this week, both Sensex and Nifty had lost 5 percent in pre-market on April 7.  Investors across the globe rushed to sell stocks with a carnage spreading from Hong Kong to France to India and the US. On April 7 alone, benchmark indices in Hong Kong crashed 13 percent, Japan closed at a loss of 8 percent, China 7 percent while in India the Nifty ended 3 percent lower. In Europe FTSE lost 4 percent while in the US Dow Jones, S&P 500 and Nasdaq fell nearly 6 percent in a single day on April 4.

According to Mark Haefele, Global Wealth Management CIO, UBS AG, markets volatility is likely to remain elevated in the weeks ahead as investors assess rapidly shifting tariff developments and consider the potential implications for growth, inflation, central bank policy, and financial markets.

“Our base case (50 percent probability) has been for higher tariffs in the near term, followed by gradual rollbacks as political, business, and legal challenges mount, trading partners offer concessions, and/or as popular support for the Trump administration falls,” he says.  Haefele adds that in an upside scenario (20 percent probability), equity markets continue to rebound sharply amid a more permanent resolution of trade disputes, the avoidance of a material slowdown in growth, and optimism about the impact of AI on earnings.

Also read: Markets bleed as Trump escalates fears of a global trade war

“In a downside scenario (30 percent probability), the “pause” in tariffs ultimately does not hold and tit-for-tat retaliation resumes. Weak demand leads to a severe US recession. S&P 500 levels in the 3,500-4,500 range would be consistent with historical recessions. We believe the 10-year Treasury yield would drop to 2.5 percent in this scenario,” Haefele explains.

In India, the narrative does not change either. The decision of the US government to suspend reciprocal tariffs for most countries (except for China) for 90 days should provide some upside to the Indian market in the short term. However, Sanjeev Prasad, MD & co-head of Kotak Institutional Equities does not see any change in the US’s goals, leading to continued large uncertainties for countries (level of tariffs),  exporters (new capex and orders) and companies (earnings).

Prasad maintains a cautious stance on the Indian markets despite the ‘positive’ development, given the fair-to-full-to-frothy valuations of most sectors and stocks and the continued uncertainties on the reciprocal tariff issue.

“We see a modest upside for the Indian market since it had held up relatively well in the past few days versus other markets,” Prasad says.

Earlier, Trump had announced reciprocal tariffs of 26 percent on imports from India, effective April 9. He said that the tariffs imposed on India were half of what India charged the US, which is 52 percent factoring in trade and non-trade barriers and currency adjustments. Across goods, energy and pharmaceuticals are exempted from tariffs, while tariffs on automobiles is 25 percent for all countries.

Even smaller countries focused on low-end manufacturing in Asia such as Cambodia (49 percent), Bangladesh (37 percent), and Sri Lanka (44 percent) have been included. The tariff imposed on Vietnam, a major manufacturing powerhouse with significant trade linkages to rest of Asian exporting countries (such as Singapore, Korea, Malaysia, Taiwan, Thailand, China), is at 46 percent. Such tariffs on Vietnam will likely also have some ripple effect on suppliers of inputs to Vietnam.

Eyes on corporate earnings 

Analysts at JM Financial Institutional Securities see a net profit decline of 5 percent year-on-year (YoY) of companies under its coverage in Q4FY25, primarily led by a weak performance in BFSI. “Our proprietary analysis also suggests that 35 percent of companies under our coverage are likely to see cuts to the FY26 earnings per share (EPS) during the Q4 result season. Sectors where highest percentage of companies could see EPS cuts in FY26 are IT, auto and auto ancillaries, building material, media, chemicals and industrials.

Similarly, revenue growth in companies under coverage in Elara Capital are likely to slow down to 3.5 percent YoY and earnings could see a decline YoY in Q4FY25. “The momentum for domestic cyclicals is set to stall as earnings decline for autos and banks YoY. On the other hand, commodities would have a mixed performance, with metals and cements likely to improve and oil & gas decline,” the brokerage firm says.

It expects an earnings contraction across all market caps.

“Within our coverage universe, large-cap firms are likely to show better resilience in terms of bottom-line performance. While we expect earnings contraction across them, large-cap earnings are set to decline by 4 percent YoY vs a sharper decline of 9 percent YoY and 8 percent YoY for mid-cap and small-cap firms, respectively. While auto and bank sectors are dragging the earnings in the large cap and midcap space, the energy sector is dragging it in the small cap space,” say analysts at Elara Capital.