Continuing from the last week (View from the Mars – 4)
For a small investor like me, whose investment spectrum is limited to the locally available instruments and opportunities, it is critical to assimilate the impact of the global events on the local economy and markets. A natural follow-up would be to assess if a change in investment strategy and asset allocation plan is required to factor in the impact of the global events.
In most cases, the impact of global events is temporary and does not warrant any change in the investment strategy and/or asset allocation. However, some global events could have a lasting impact on the domestic economy and markets. Such events often require material change in the investment strategy and asset allocation.
It is important to note that in the past three months, the world has not witnessed any event that was not widely anticipated. The shift in the US policy (fiscal and monetary) paradigm was widely anticipated and documented. The response of the trading partners is also more or less on the expected lines. The geopolitical developments, economic growth, currencies, equities, bonds, commodities, etc. are mostly moving in the direction as was widely anticipated. In my post about outlook and investment strategy for the year 2025 (shared in the beginning of 2025), I had shared my anticipation of these events and consequent adjustments in my investment strategy and outlook.
Notwithstanding, let me again note down the important current global events that could have a material impact on the Indian economy and markets. (Please note that I have taken some inputs from AI tool Grok 3 (beta version) in preparing this post.)
Opportunities for India
Supply Chain Shift: Trump’s tariffs are pushing U.S. firms to diversify away from China. There is an potential for India to grab this opportunity. In 2024, India’s electronics exports to the U.S. spiked 22%. The Bilateral Trade Agreement (BTA) framework, as discussed by the Prime Minister and White House during the PM's February visit, could open bilateral trade opportunities worth US$200bn by 2027.
Visa curbs (H-1B denials up to 35%) might force Indian IT to onshore talent, boosting hubs like Hyderabad—Wipro’s hiring 10,000 locally, providing impetus to local economies. Less immigration pressure might also redirect diaspora skills home, powering startups. As per NASSCOM, 1,200 new startups became operational in 2024.
Defense and Tech Edge: Trump’s anti-China could tilt trade balance in favor of the Quad. India has reportedly already moved forward with $5 billion arms deals with the US, since January. COMPACT tech transfers (AI, chips) could leapfrog India’s R&D. India’s premier defense research organization (DRDO) is eyeing U.S. quantum tech.
Energy Stability: Peace in Ukraine and the Middle East, after the US intervention, could steady oil at $70-$75. India, which is 80% oil-import-dependent, saves $10 billion annually if prices don’t spike. LNG from Qatar gets cheaper too.
Trade normalization: A calm Black Sea and Red Sea (Houthi attacks down 40%) unclog shipping, allowing India’s $45 billion EU exports to flow smoothly via Suez. Peace could also revive the International North-South Transport Corridor (INSTC) with Russia-Iran, cutting freight costs 20%.
China’s Retaliation Opens Doors: China’s counter-tariffs—25% on U.S. autos and tech imports and yuan devaluation (5% drop, PBOC) makes Chinese goods pricier. India’s textiles (now up to 20% cheaper than China’s) and pharma generics (40% of the U.S. market) could take some of the US’s market from the Chinese suppliers.
Investment Inflow: China’s economic slowdown as a consequence to slower exports could reverse the flows of global capital (FDI and FPI) towards India. Though FDI into India hit $70 billion in 2024, up 12% yoy, the rate of growth in FDI flows has been declining for a few years. Weakness in USD and sharp fall in the US treasury yields could turn the global investment flows towards the emerging markets. India being one of the major emerging markets, would certainly stand to benefit.
Cheaper Capital: U.S. 10-year yields dipped to 4.3%, EU’s at 2.1% (ECB). India, having over $400 billion of external debt does benefit directly from the lower yields. Even Rupee bonds could draw more investors if yields keep sliding, easing pressure on domestic banks which are constrained by an adverse credit-deposit ratio for many months.
Export Boost: Falling inflation (U.S. PCE at 2.7%, EU at 2%) lifts disposable income of Americans and Europeans. As per GTRI, India’s consumer goods (handicrafts, apparel) could see a 10% uptick in demand due to lower inflation and a weaker dollar.
Threats for India
Export Pain: India’s $77.5 billion U.S. exports face a $7 billion hit from tariffs. Textiles and gems bleed the most. IT’s $108 billion U.S. revenue stalls if H-1B cuts force wage hikes (Trump’s 50% proposal, per ORF). Remittances (~$10 billion from the U.S.) could be materially affected.
Retaliation Risk: Retaliatory tariffs on India’s exports to the US could potentially dent some of the $45.7 billion trade surplus India enjoys with the US.
Commodity Competition: As peace returns to Russia, Ukraine and the Middle East, India’s petroleum product export and wheat exports in particular, may be adversely affected.
Dumping Threat: If China floods global markets with cheap goods, India’s MSMEs could be adversely impacted. China’s ~$30 billion trade surplus with India could balloon, straining forex reserves.
Border Tension: China’s tariff war might spill into Ladakh and Arunachal Pradesh, straining diplomatic relations and further fueling tension..
Capital Flight Risk: If U.S./EU yields crash further, investments could flow to the developed economy bonds anticipating further gains. China’s stimulus could siphon even more funds.
Demand Softness: Deflationary pressure in the West might cap India’s export growth—gems and jewelry stagnate if wallets tighten.
Conclusion
India could materially benefit from the current global events, especially U.S.-China fallout—supply chains, tech, and peace-driven energy savings could push GDP past 6.5% by 2027. However, we need to see proactive policy response and strong execution to capitalize on this opportunity. A long-term strategy is also needed to mitigate the impact of frequent tariff and VISA threats. China’s countermoves might flood or flank India, and Western yield drops could make capital flows very volatile and unpredictable. Peace helps, but only if India diversifies fast—BRICS, EU, ASEAN—to offset U.S. volatility. Trump’s bluff might crumble by 2026 if China holds firm, amplifying India’s export risks but opening manufacturing doors. A Middle East flare-up could spike oil and ruin it all.
Overall, the situation, as anticipated earlier, is very volatile and unpredictable. For now, it does not warrant any change in the investment strategy, as shared in the beginning of the year:
“2025 may be a far more challenging year for investors as compared to 2024. The volatility and uncertainty may increase materially, requiring investors to focus on capital preservation rather than making some real returns.
I shall maintain a standard allocation in 2025 and engage in active trading in my equity and debt portfolio to optimize return using the benefit of large swings. At the same time, I would continue to look for opportunities in the emerging themes for the next many years and build a long-term portfolio. Returns will not be my primary focus in 2025.”
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