Analysts see 3-5% domestic relief rally, but Wall Street tempering sentiment

Mumbai: Indian equities may be poised for a relief rally on Friday, although expectations of a market pop were blunted by US stocks plunging into the red in Thursday early trade after a record-breaking rally a day earlier, indicating that the damage inflicted by Donald Trump's tariff antics may be too deep to be fixed instantly by his 90-day pause.

Domestic stock markets missed the global rally on Thursday as they were shut for Mahavir Jayanti.

S&P 500, Dow Jones and Nasdaq were down 3-5% at the time of going to print.

The extent of the stock surge in Asia and Europe on Thursday, as well as the earlier record single-day runup since 2008 in the US, suggest the Sensex and Nifty could rise by as much as 3-5% on Friday. However, the cues from the intensely volatile Wall Street are shaky. Analysts are hesitant to conclude whether the market would have the legs to build on Friday's likely rebound as sticky US Treasury yields and concerns over its economic outlook could keep investors cautious.

Bounce Unlikely to Sustain: Analysts
"The bounce in Indian markets on Friday primarily will primarily be driven by short covering, but the rally is likely to be restricted to 3% or thereabouts," said Akshay Chinchalkar, head of research, Axis Securities.

Trump announced a 90-day pause in the reciprocal tariffs imposed on April 2 for most countries, excluding China. A 10% blanket tariff on imports from all countries will remain. The rise in US Treasury yields, driven by worries about the fallout of the tariffs on inflation, is widely speculated to have been a key reason for the US President to back off.

"The tariffs announced were mainly a negotiation tactic and not sacrosanct. So, the 90-day pause is expected to trigger a relief rally on Friday," said Siddarth Bhamre, head of institutional research, Asit C Mehta Intermediates. "However, a 10% tariff is already effective and not revoked."

Bhamre said the stocks bounceback is not anticipated to be sustained as the US-China trade war is only intensifying.

Asian markets rallied on Thursday, with Japan and Taiwan surging over 9% each. South Korea soared 6.6%, while Indonesia gained 4.8%.

The increases in China and Hong were relatively moderate, with China 1.2% higher and Hong Kong, 2.1%. Trump has imposed an additional 125% tariff on all Chinese goods, over and above the 20% tied to fentanyl production, escalating the economic conflict between the world's largest economies.

"Given the back and forth on tariffs, the uncertainty is not expected to go away completely but it is anticipated to relieve some short-term pressure," said Rohit Srivastava, founder at indiacharts.com. While a op is likely on Friday in India on account of short covering, this may not extend to the next few sessions, he said.

Soon after Trump announced he was putting the tariff plan on hold on Wednesday, the US markets soared, with the Nasdaq Composite Index shooting up over 12%, while the Dow Jones Industrial Average and S&P 500 gained nearly 8% and 9.5%, respectively.