Trade war fears rattle stocks, Sensex plummets 300 points

Markets see steepest fall in 2 weeks over worries of retaliation to Usimposed tariffs

MUMBAI: Indian stocks fell on Monday, tracking declines in global markets, as fears of a trade war rattled investors after US President Donald Trump decided to impose hefty tariffs on steel and aluminium imports, risking retaliation from trading partners.

Indian stocks saw their steepest decline in the past two weeks, with benchmark indices falling over 1% in intraday trading on Monday.

Over the weekend, Trump upped the ante by daring the US’S trading partners to act on threats of retaliation after they threatened to impose counter-tariffs on US exports. The fears of a fullblown global trade war come at a time when foreign institutional investors (FIIS) have been on a selling spree because of a rise in the US bond yields. FIIS sold Indian shares worth $1.9 billion in February, the highest in 15 months.

“The markets fell largely due to what is happening globally. Trade war threat impacting global trade movement and currency situation led to the sell-off in equities worldwide,” said Amar Ambani, partner and head of research, IIFL Investment Managers. “Despite a marketfriendly development as Bharatiya Janata Party won elections in north-eastern states was not enough to offset the global markets rout.”

The BSE’S benchmark Sensex fell 300.16 points, or 0.88%, to close at 33,746.78 points on Monday, while the National Stock Exchange’s Nifty shed 0.95% to 10,358.85 points. Equity gauges from Tokyo to Sydney slumped amid worries about the implications of US tariffs on the world’s economy.

Metal stocks were the worsthit, with the BSE Metal index falling 3.3% on Monday. Kotak Institutional Equities, however, said that the extent of potential steel mill, aluminum smelter restarts in the US will not be meaningful enough to significantly weaken the outlook on global aluminum and steel, especially given supply-side reforms in China in these industries.

The brokerage estimates that steel exports to US from other countries will decline by 9-14 million tonnes (mt) due to the imposition of higher import duties. The US produced 82mt of steel in 2017 on an annual capacity of 113mt and imported 36mt of steel. “We believe lower China supplies from end of CY2018/CY2019 can set the tone for a strong aluminum outlook over the next 2-3 years,” it said in a report on Monday.

Analysts expect the market volatility to continue ahead of the general elections in 2019. Five more states will go to polls this year before the national elections.

According to Jinesh Gopani, head of equity at Axis Asset Management Co. Ltd, the markets look weak. “A markets recovery will depend on macro growth and earnings revival. Until then, the markets are expected to remain volatile and foreign investors are likely to be on the sidelines,” he added.

Morgan Stanley has already reduced its India weightage because of high valuations and weak earnings growth.

The brokerage has cut its overweight stance on India to 50 basis points after a disappointing earnings season and slowing revisions breadth.

Bloomberg data shows Sensex companies’ consensus earnings per share forecast for the current fiscal have been cut by 10.57% since the beginning of the financial year. For the next fiscal, they have been reduced by 6.69%.

The Sensex currently trades at 18.18 times 12-month forward earnings, making it one of the most expensive benchmark gauges.

So far this year, FIIS have bought Indian equities worth $107.86 million while domestic institutional investors were net buyers of shares worth ₹18,208.45 crore.

Bloomberg contributed to this story.