Market Volatility: FII Sell-Off and Tariff Worries

Market Shift After March Rally

Following a robust March rally, where Foreign Institutional Investors (FIIs) bought Indian stocks worth Rs 10,255 crore, the market is displaying volatility. FIIs have started selling off their holdings, just prior to US President Donald Trump’s expected Liberation Day tariff announcements.

Tariff Uncertainty and Market Response

• Geojit Investments’ Chief Investment Strategist, VK Vijayakumar, indicates that while today’s tariff declaration might reduce some uncertainty, Trump’s past unpredictable decisions imply that the uncertainty could continue.
• FIIs became aggressive buyers towards March-end, likely due to end-of-year considerations. Their buying spree led to short-covering, contributing to India’s outperformance.
• As the market direction changes, FIIs are now resuming short positions.

Guidance for Investors During Volatility

Vijayakumar advises investors to wait for more clarity on tariffs and market trends. If the tariffs are worse than anticipated, further sell-offs could occur, although domestic consumption-driven sectors are expected to remain resilient in such a scenario.

Reasons Behind the FII Sell-Off

Jahangir Aziz from JPMorgan cautions that India may not escape reciprocal tariffs. He emphasizes two additional concerns: the potential for a global risk-off event and its impact on the dollar. If US equities suffer, history suggests that global markets, including India, will not be immune.

Short-Term Pain, Medium-Term Gain?

Market expert Sunil Subramaniam views the current volatility as short-term pain with potential for medium-term gain. He believes that much of the price correction is already priced in, in anticipation of bad news. Unless there is a surprise sector-specific tariff, Subramaniam suggests that the worst may already be priced in.

Opportunity Amid the Uncertainty

Inditrade Capital’s Group Chairman, Sudip Bandyopadhyay, acknowledges the uncertainty surrounding the markets. He sees opportunity in the midst of this uncertainty, as several strong stocks are experiencing corrections due to unpredictability.

Investment Strategy for Uncertain Times

Analysts concur that near-term uncertainty will persist, but investors with a long-term outlook can start deploying capital gradually. Vijayakumar remains cautiously optimistic, noting that India’s economic fundamentals are still strong. Bandyopadhyay echoes this sentiment, suggesting that it’s impossible to predict how the global markets or India’s markets will react once the tariffs are announced.

India’s Real Challenge: Global Monetary Policy

Aziz points out that India’s real challenge lies not just in tariffs, but in how global monetary policy unfolds. If there’s a global slowdown or a risk-off event, emerging markets like India will need the ability to respond with rate cuts.

Preparing for Trump’s Tariff Decision

With FIIs turning net sellers once again, the market direction now depends on Trump’s upcoming tariff decision. Investors should prepare for volatility and carefully evaluate their investment strategy.