Trade storms shake sensex stability

Indian equities have become one of the worst performers as the world resets its trading rules. For the first time since 2009, Sensex's P/E is trading below that of the Dow. Despite once-rich valuations among emerging markets (EM), foreign investors keep selling even after a sharp correction from last year's peak. The sell-off started due to concern that the economy is cooling faster than anticipated. US tariff action puts India in a difficult position. It has relatively high average tariffs vis-a-vis its largest trading partner, and bringing about parity could be an additional drag on growth. US duties creating an oversupply in China will also have a bearing on India's export growth. Corporate commentary must revive before foreign investors show interest in Indian equities. Exchange rate movements are also working against Indian earnings.

The US economy has been resilient to monetary compression and corporate performance is robust in comparison to India. This is the primary cause of reversed equity flows, but other factors are also at play. Chinese equities are moving out of the oversold zone even though the economy is at the frontline of US tariff action. Beijing's retaliatory tariffs - in contrast to New Delhi's accommodative stance towards Washington - are not deterring foreign investors from chasing beaten-down Chinese stocks. This could be an indicator of China's resilience to reciprocal US tariffs.

Indian policymakers have been proactive in addressing slowing growth. The budget announced generous tax giveaways, followed by RBI cutting interest rates and easing up on liquidity. India and the US have initiated a review of their bilateral trade to improve market access. These measures will take a while to work their way through the system. Indian equities may not have bottomed out but are beginning to look attractive at their less-lofty valuations. India maintains its position as the fastest-growing major economy. A revival in household consumption could restore its status as an island of calm in a turbulent ocean.