Please find below the 5 charts that tell interesting stories on Markets and Investing.

 

1) US Tariff Surges to Century High Levels:

 

The United States has announced the largest tariff hike since the Great Depression of the 1930s.

 

The average tariff rates of 23% will be effective from today.

 

These heightened tariffs are expected to raise consumer prices, potentially dampening demand and slowing down the global economy.

 

To avert the risk of a global recession, we need countries to engage in constructive negotiations to reduce these tariffs.

 

 

2) Impact of Tariffs and Fiscal Stimulus on GDP:

 

US Tariffs is expected to slow down the global growth and hit the GDP growth of all the countries.

 

Countries will try to reduce the tariff impact by increased Government spending (Fiscal Stimulus). 

 

China and Germany have already announced record Government expenditure. 

 

US GDP Growth is projected to fall from 2.9% to 0.5% in 2025. Eurozone is expected to see a decline from 1.2% to 0.6%. China's GDP growth is anticipated to increase from 4% to 4.2% due to large fiscal stimulus. 

 

India's GDP is expected to experience minimal impact because of low exposure to US goods exports. 

 

India's GDP growth is anticipated to face a modest impact of 0.4% and still achieve robust growth at approx 6%.

 

Govt may try to counter the same by increased Govt spending and RBI rate cuts. 

 

3) Equity Market Correction So Far:

 

Indian Equity markets have been undergoing a correction since 23rd September 2024. 

 

Nifty 50 has declined by 13%, while the Mid Cap and Small Cap are down by 20% and 22% respectively. 

 

US equity has also been impacted, with Nasdaq being down by 15% and S&P 500 dropping by 13%. 

 

We are in the seventh month of correction. This correction has been prolonged but relatively shallow when compared to previous corrections.

 

Indian equities continue to show resilience due to continued domestic buying and monthly SIP flows. 
 

 

4) Indian Equity -  Valuation Correction:

 

One positive aspect of market corrections is their ability to improve valuation, making indices more attractive for the next phase of growth.

 

Indian Indexes have seen significant correction in their PE Ratio (Valuation Indicator) from the recent peak. 

 

PE Ratio for Nifty 50 has fallen by 16%. Next 50 and Small Cap have also declined by 17% and 16% respectively.

 

The sharp correction has happened in Mid Cap and Micro Cap with decline of 29% and 44% respectively. 

 

According to our research, Large Caps are fairly valued now. However, Mid Caps and Small Caps continue to be overvalued by approx 20%.

 

5) Interest Rate Cuts by the US Fed:

 

US Fed has dual mandate of controlling inflation and promoting growth of US economy. 

 

US Fed uses interest rate as a tool to manage the economy and inflation. 

 

With expected slowdown in US economy, US Fed is expected to take proactive action soon. 

 

6) Silver Lining - Market Corrections Present Big Opportunities (Bonus Chart):

 

Equity market corrections often invoke fear, as they bring uncertainty into our lives—a combination that most people find uncomfortable.

 

However, the silver lining is that volatility and uncertainty also create opportunities for those who remain patient and strategic. 

 

Historically, markets have always rebounded after major drawdowns.

 

Investors who hold on to their existing investments and make additional purchases during downturns tend to enjoy strong returns over time.

 

Below chart shows major crisis of the past, the drawdowns in equity and subsequent returns after 1 year, 3 years and 5 years post the crisis. 

 

 

Investor Guidance: At current levels, it is prudent to invest only that money in equity which is not required for next 5-7 years. 

 

Disclaimer:  The perspectives provided reflect our expectations of the economy, market, and investments, which may or may not materialize. Investors are encouraged to conduct their own due diligence before investing.

 

Read more similar articles in our blog - https://alphacapital.in/blog/

 

Best Regards

 

Dr. Mukesh Jindal CFA, CFP, CAIA, Ph.D.

Alpha Research