House View: Tariffs, earnings and policy

The first quarter of 2025 has already witnessed critical geopolitical shifts with significant implications for global markets. One of the major developments is the United States' renewed focus on trade protectionism under President Donald Trump. His administration’s stance on tariffs is reshaping global trade order and will likely influence investor sentiment in the coming months. Looking ahead all eyes are on three key factors that are set to significantly influence the investment landscape for investors in India. Firstly, we need to be watchful of the tariffs and their impact on the global trade and direct impact on our country with respect to certain sectors like IT, pharma, auto and auto ancillaries and textiles etc. As mentioned earlier, tariffs if extended for a long time might be growth hampering and can lead to global slowdown.

On the other hand, it might turn out beneficial for countries with lesser tariffs and we can see movement of capital from higher tariff countries to lower tariff countries. Secondly, corporate earnings are expected to be muted in the fourth quarter but are expected to rebound in FY26, driven by a robust economy. Indian corporations are well-positioned with low leverage on their balance sheets, and the country's financial system remains stable, supported by the healthy balance sheets of banks. And thirdly, the Government of India has demonstrated its commitment to economic growth via the FY26 union budget aimed at boosting consumption. This combination of fiscal boost along with lower crude prices in 2025, and controlled inflation should pave way for the country’s economic growth.

Highlights

• Trump Tariff tantrums anxiety + domestic factors (weak earnings growth, consumption slowdown & rich valuations) led to big underperformance by Indian equities in 1QCY25
• Following a year of consecutive elections at both state and central levels, the Government of India has demonstrated its commitment to economic growth by presenting a budget aimed at boosting consumption. The budget includes tax reforms under the New Tax Regime, resulting in zero taxes for middle-class taxpayers with an annual income of up to INR 12 lakhs.
• Consumer tech in India is set for strong growth in 2025, driven by a young population, rapid digital adoption, and an expanding online shopper base. Key enablers include digital infrastructure expansion (ONDC scaling to ~500 cities), new monetization models, quick commerce boosting D2C brands, rising demand for premium products, and a continued focus on profitability.
• REITs in India are still at their early stage compared to other global markets. The market capitalization of Indian REITs is < 10% compared to USA, Singapore, and other countries in the APAC.