Results Will Drive Markets Amid US Tariff Uncertainty

The April 10-16 period had a mere three trading sessions with holidays on Thursday and Monday. Markets saw very sharp gains on Friday and Tuesday on the back of a hold for 90 days on tariffs imposed by Donald Trump on 74 countries of the world. Wednesday saw the markets moving between a small and negative territory for a larger part of the day. Finally, it picked up momentum and closed with gains of 0.47 per cent on Nifty and 0.40 per cent on BSE Sensex.

BSE Sensex gained 3,197.14points or 4.33 per cent to close at 77,044.29 points, while Nifty gained 1,037.15 points or 4.63 per cent to close at 23,436.30 points. Markets gained on all three of the trading sessions.

Dow Jones had a volatile time and gained on three of the five trading sessions and lost on two. Dow lost 239.49 points or 0.59 per cent to close at 40,368.96 points. The key concern in markets globally is Trump’s tariffs. The current situation even after the moratorium is a state of flux. Incidentally, moratorium does not extend to China on whom a tariff of 145 per cent is present. China in turn has levied a tariff of 125 per cent on USA. The interesting thing is that all thedrama on tariffs was over in the previous period and what we saw this period was marketsrecovering to where they had fallen from.

Continuing further, China has stated that they will not ship parts to Boeing, supply rare earth andother natural resources to USA. Currently exporting countries to USA have been flooded with ordersto be complied with before the 90 day ban expires. These are countries like Vietnam, etc., who are doing proxy business for China and Chinese companies. Trump continues to say different things on different days and comes across as someone who is now feeling the heat between the response of China and the fact that Americans are getting worried about the impact of tariffs.

Tariffs have now become a daily warfare and one can expect changes at the drop of a hat. As it is the pharma sector is still waiting as to what would happen. I believe it is best to leave Trump and tariffs aside and carry on with the markets. The ground reality is quite scary. Some interesting data point to elucidate what the whole war is all about. US has a trade deficit of $1.2 trillion on an import of $3.26 trillion and export of $2.06 trillion. Of this the trade deficit with China is $296 billion. It now appears that US needs China and not China needs US, simply because China supplies globally. The dependence on US for supply has diminished as China has made new markets and become the factory to the world.

Coming to the April 17-23 period ahead, we have a trading holiday on Friday which is a holiday in most markets. This would bring the markets to an early closure and lead to an extended weekend. Results season has started, and the pace of declaration would accelerate in the coming week. The beginning has not been the best and today evening’s results from Wipro would be keenly awaited asTCS were not the best. Depending upon how the street takes Wipro results, one would be able toform a view about the IT sector which has not been performing well.

Markets would now be more impacted by results rather than tariffs. While there could always besurprise and shock at what Trump does, the impact would be short lived as he could roll back aswell. One needs to wait and watch whether China does come to the negotiation table or not. Till that happens there could be global issues, but other countries would function as China is not at war ontariffs with the world. It is only the USA.

Coming to the markets, while there is always going to be that nagging doubt about Trump and tariff, people will no longer be terrified about Trump or tariffs. At the end of the day, everyone hasunderstood that Trump wants to reduce the deficit, reduce interest rates so that his debt can berefinanced lower. Whether it happens with what he is doing is a million-dollar question. All one cando is wait.

The strategy would be to continue to look at large-cap stocks. There is comfort in the banking sector and the rally was led by the top banks of the country in this sharp recovery. Mid-cap and Small-cap will have their own pockets of strength, but the driver for them would be results.

Analyze results as they are declared before taking any meaningful position in small and midcap stocks. Markets have resistance on the upside at levels of 23,500- 23,550 and higher up at 23,800-850points. These would correspond to levels of 77,250-77,400 and higher up at 78,150-78,300 points for the BSE Sensex. On the support side we have levels of 22,850-22,900 and 75,250-75,400pts, respectively. Trade cautiously as we now have two uncertainties ahead of us. The first is Trump and tariffs and second is the results from corporate India.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)