India’s Strategy Amid Global Disruptions

The Indian equity markets have recently experienced heightened volatility with a downward bias. The momentum that began in April 2025 appears to be losing steam. Over the past month alone, frontline indices have declined by nearly four per cent, in contrast to many global benchmarks, including U.S., Europe, and Japanese equity markets, that are hovering around their 52-week or all-time highs.[EasyDNNnews:PaidContentStart]

This relative underperformance is being driven by a combination of factors. Corporate earnings have fallen short of expectations, leading to downward revisions in consensus earnings, particularly for the Nifty, which has resulted in more conservative forecasts for FY26. Compounding this pressure are rising global trade tensions, especially the recent tariff threats from the United States.

In 2024, India’s trade relations with the U.S. remained strong. The U.S. accounted for 20 per cent of India’s export basket, with goods exports to the U.S. totalling USD 87 billion, contributing 2.3 per cent to India’s GDP. Imports from the U.S. stood at over USD 40 billion, or 1.1 per cent of GDP, resulting in a trade surplus of USD 46 billion (1.2 per cent of GDP).

However, effective August 1, 2025, the U.S. has imposed a 25 per cent tariff on Indian exports, a move that has unnerved the markets. Preliminary estimates suggest that this tariff could shave off approximately 0.2 to 0.3 per cent from India’s GDP growth. The most vulnerable sectors include electronics, jewellery, pharmaceuticals, and textiles—industries central to India’s export economy and the U.S.-India trade dynamic.

While this development presents a clear challenge, it also offers a strategic opportunity. History provides useful parallels. During the 1973 Oil Embargo, when OAPEC (led by Saudi Arabia) halted oil exports to the U.S., prices soared from USD 3 to USD 12 per barrel, triggering severe inflation and economic disruption. In response, the U.S. launched Project Independence, built the Strategic Petroleum Reserve, and later harnessed shale oil—transforming itself into a net petroleum exporter by the mid-2010s. Similarly, between 2016 and 2020, when the U.S. imposed tariffs on USD 335 billion worth of Chinese imports (peaking at 19.3 per cent), China countered by diversifying export destinations to ASEAN, the EU, and emerging markets, relocating manufacturing to Vietnam, and stimulating domestic consumption through tax cuts and the ‘dual circulation’ strategy. As a result, China managed to stabilise export volumes despite a decline of over 20 per cent in exports to the U.S..

India can draw inspiration from both these cases. With 68.9 per cent of its population expected to be of working age by 2030, and a consumption-driven economy that accounts for 60 per cent of GDP, India’s demographic dividend presents a powerful foundation for future resilience.

To strengthen its economic position further, India must accelerate infrastructure development, which is crucial for supporting long-term growth and enhancing its global competitiveness. Additionally, the country should focus on diversifying its trade partnerships beyond the United States, with a strategic emphasis on regions like ASEAN, the European Union, and Africa. Expanding these partnerships will help mitigate risks associated with over-reliance on a single market and open up new avenues for economic collaboration. Such proactive strategies can help India mitigate the impact of global trade disruptions, navigate geopolitical shifts, and emerge as a formidable player on the world economic stage.

I believe downside in the broader market from here is limited due to the tariff as 80 per cent of Nifty 500 revenues are generated domestically and limited U.S. exposure (around 5 per cent). India’s internal demand is likely to help cushion the effects of external shocks. The investment cycle is gaining traction, propelled by rising corporate capex, although actual disbursals may lag projections. Meanwhile, consumer discretionary demand is expected to rebound, supported by tax relief, lower interest rates, and improving credit availability

Nonetheless, in light of ongoing global uncertainties, a well-diversified investment strategy is advisable. A systematic approach, with a greater allocation to domestic-facing companies across market capitalisations, will provide a balanced pathway to managing risks and capitalising on India’s long-term growth potential.

RAJESH V PADODE
Managing Director & Editor

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