Prashant Jain, Founder & CIO, 3P Investment Managers, says India is not a major manufacturer and has a significant manufacturing gap compared to other countries, so the Trump tariffs likely won’t impact it much. However, they could affect the dollar, the DXY index, and lead to foreign institutional investors selling, which may influence capital markets and stocks. Historically, a rising DXY prompts foreign selling, and while this trend has persisted for four months, it may continue for a while. Nonetheless, Jain believes one should consider investing in large-cap stocks in the next one to three months, as their earnings remain stable and our valuation multiples align with expected growth rates. Local investments will continue to support the market despite the selling.If it was Budget on Saturday, and on Monday, it is Trump and tariffs. Is the world prepared for this tariff war? What is the preparedness of financial markets, assuming that everyone knew that this was coming the day Mr Trump was elected?Prashant Jain: If you look at the current account deficits of the US with their trading partners, India is way down in that list. It is extremely small. And it is well known that India is basically largely a services exporter where tariffs are on the table, it is also difficult. So, India is not a manufacturer. In fact, we have a huge manufacturing deficit with the rest of the world. So, these tariffs should not impact India meaningfully, that is what I feel.Now, what these tariffs will do to the dollar, to DXY, to FIIs selling, could impact capital markets and equities. In the past, whenever DXY has appreciated, we have seen considerable amounts of selling by foreigners. But this selling does not last indefinitely. We are already underway four months of intense selling. It could again continue for some more time. But I feel that in the next one, two, three months, we should get invested in largecap stocks because earnings are not dislocated there. Our multiples are in line with the likely earnings growth rates. A very significant amount of selling has taken place and local flows will sustain. Though their composition might change over time more towards largecaps and less towards thematic funds, small and midcaps. The dilution in Nifty stocks is hardly there. So, I feel the Nifty will find a floor, and in fact the returns in similar type sof stocks should be reasonable over time.You Might Also Like:Bitcoin dips below $92,000 amid Trump’s tariffs; Dogecoin, XRP down over 24%Is there a way we can establish why FIIs are selling? How much more could they sell? Will they sell more if the dollar strengthens? What is the template at work right now?Prashant Jain: I do not think that even the foreigners themselves know because while we club them conveniently as FIIs, they are a very disparate group sitting in different parts of the world, having different structures. Some are endowments, some are long only, some are hedges, some are investing from EM fund
Mar. Feb 4th, 2025
