India may escape blows of global fights, but face PE cut

India may not be singed in the current bout of hostilities among global trading blocs, but risk aversion could trim the price-earnings multiples for key local indices that appear more expensive than their emergingmarket peers.

P/E compression could amplify in the indices where premiums are higher than their long-term averages. The Nifty index is trading at 16.97 times its FY19 earnings - a 9 per cent premium to its five-year average and is still considered expensive among the top 20 markets.

Experts believe that rising protectionism could potentially weaken global growth and accelerate inflation. The OECD estimated that a 10 per cent rise in trade costs would lower global GDP around 1-1.5 per cent. The impact of the hit to global growth will depend on the scope of US protectionism.


If the US imposes tariffs on a narrow set of goods, the impact will be less pronounced. But if Washington were to impose a broad-based, 20 per cent tax increase across Chinese manufactured goods, the move could trigger a commensurate response from China. The latter case could be more detrimental for global trade.

So far, US put tariffs on $60 billion worth of Chinese goods and China responded with $3 billion of US exports to Beijing. The exposure of India – both by merchandise exports and otherwise - to the US is among the lowest in the emerging markets.

India’s trade surplus with the US is nearly 1 per cent of India’s GDP. The exposure of India’s listed companies to the US market is around 9 per cent, while Taiwan and Mexico have exposures of about 30 per cent and 16 per cent. respectively.