Trump trade uncertainties to dictate market movement

This week, we expect the markets to trade within a broad range, albeit with some volatility and stock specific action on the back of global developments; especially uncertainty in the United States trade policies. Key macro data to be released this week includes Japan’s Q4 GDP, February retail inflation for US, China and India, and January industrial production data for India. The market would also react to Federal Reserve Chairman Jerome Powell’s commentary on Friday and Donald Trump’s address on Saturday.

Trump postponed the 25% tariffs on goods from Canada and Mexico till April 2, which he had implemented earlier. Trump’s fluctuating trade policies have led to persistent global uncertainty, dampening market sentiments world-wide.

Last week, Nifty 50 gained 1.9% to close at 22,553, driven by value buying at lower levels. The broader market also attracted investor interest, with Nifty Midcap100 and Nifty Smallcap100 rising by 2.6% and 5.4% respectively. All sectoral indices ended in the green with Nifty Metal and Energy indices being the top gainers, up 9% and 6% respectively. They were followed by PSU Banks and Infrastructure indices gaining over 4% each.

Metal stocks saw a sharp surge on account of China’s plans of cutting its steel output and ramping up fiscal stimulus. Further, the US dollar index slipping to a four-month low has made commodities more affordable for buyers using other currencies, leading to increase in demand. 

Brent Crude oil prices declined to a six-month low, hovering below $70 a barrel after OPEC’s decision to increase output from April. This move tends to favour Indian oil marketing companies in the form of improved margins, and led to momentum in OMC stocks. Further, energy, paint, aviation and tyre stocks are also expected to benefit from the falling oil prices.

February automotive sales volumes have largely aligned with our expectations. Overall, wholesale dispatches grew 2% year-on-year for passenger vehicles, and 16% for tractors. However, two-wheeler volumes declined 4% while commercial vehicle volumes declined 8%. Demand across segments is likely to remain weak, except for tractors, where dispatches are expected to remain strong in the near term, driven by positive farm sentiment.

In a measure to further boost liquidity, the Reserve Bank of India announced Rs1 lakh crore open market purchases and USD/INR swap auction of $10 billion in March. With this, the banking system is expected to end the financial year with improved liquidity conditions, lowering the cost of funds for banking and financial companies.

The prolonged sell-off in the domestic market since October 2024 has brought equity valuations to more reasonable levels, potentially attracting value buyers. Nifty is currently trading at a 12-month forward price to equity of 18.6x which is at a 9% discount to its 10-year average of 20.5x. The impact of this could be seen last week, in the form of a rebound in the benchmark as well as broader market indices. Going ahead, the market direction largely depends on sustenance of buying interest and developments on the US tariff policies.

(The author is head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)