In a conversation with Etmarkets’ Kshitij Anand, Powell pointed out that it eased inflation and that the Reserve Bank of India has made the Indian government’s bonds an attractive source of income, providing higher yields compared to many global counterparts.
He also highlighted the strategic importance of gold as a portfolio diversifying device, particularly in the face of rising geopolitical tensions and continued uncertainty in trade policy.
Edited excerpts –
How do you see the tariff structure affecting the US economy and the impact that could have the consequences on India and China?
a) The US has suspended newly announced tariffs in most countries for 90 days, hours after its biggest market shock of decades and unleashed volatility.
President Donald Trump has suspended extra “mutual” tariffs in all countries except China and is currently facing at least 145% tariffs. A 10% universal tariff remains.
Trade tensions with China have deepened, and serious uncertainty remains. However, the suspension suggests that the US administration explains to some extent the financial risks and costs, as well as the willingness of the nations involved, and checks the maximum stance during negotiations.
This is a major development, particularly in mitigating the short-term risk of financial accidents. But we need to support unpredictable negotiations, but the US could still end up with much higher tariffs than we expected a few weeks ago.
Even after pausing, we estimate that the average effective tariff rate is currently around 20%. Three major types of US tariffs are seen.
First, so far, tariffs in the strategic sector that support the collection of 25% of automobiles and parts, as well as sectors such as steel, semiconductor, pharmaceuticals, copper, and steel and aluminum.
Second, a universal 10% tariff on most imports to generate revenue and support domestic production.
Third, the country-specific tariffs of around 60 countries with commodity trade surplus with the US are aimed at providing negotiation leverage to reduce imbalances.
US tariffs are added to inflation, and continued uncertainty is increasing the risk of a recession. Long-term policy uncertainty can place emphasis on corporate capital expenditures and delay long-term commitments.
Consumer spending can be damaged by erosion of wealth and true income. The dents of foreign investors in the US can suppress their appetite for US assets
In China, we see tariffs lower growth. And potential policy stimuli only partially offset that resistance.
Exports of Indian goods to the US face 10% tariffs, with an additional 26% of “mutual” announced on April 2 that they had suspended for 90 days.
Trade uncertainty likely lasts and could drive more market volatility, but we hope that negotiations will determine the ultimate tariff landing zone. Indian officials have shown the urgency towards a resolution.
That said, exports of goods to the US account for less than 5% of GDP, limiting India’s direct exposure compared to more trade-dependent economies.
The Reserve Bank of India has shifted to an adjustable posture after cutting 25 basis points earlier this month. The decline in oil prices supports India as a major energy importer.
Q) How should India and other emerging economies be prepared for potential changes in US trade policy?
a) We maintain neutral emerging market stocks and believe that the impact of US tariffs will vary from region to region. With the launch of a new stage of negotiations on tariffs, India believes it is likely to adopt a reconciliatory approach.
Prior to the tariff announcement on April 2, India had already begun reducing import duties on certain goods in order to negotiate better deals with the US.
What’s also important is how long the uncertainty of US policy historically lasts. The longer it gets, the greater the potential damage to economic activity.
Q) What are the major global investment themes for 2025? And how does it affect capital flows to emerging markets like India?
a) A 90-day suspension on additional mutual tariffs suggests that the US administration will explain to some extent the financial risks and costs, as well as the willingness of the countries involved, and check the maximum stance during negotiations.
As a result, you will be able to return the tactical horizon from 3 months to 6-12 months, carefully putting you at risk. We, including us and Japanese stocks, will increase our stock exposure.
But we look forward to an ongoing volatility and a potentially sharp reversal. Selectivity across sectors and securities is important, and we are wary of chasing momentum.
US technology and global banks, particularly European banks, are being hurt by extensive sell-offs.
The long-term US Treasury failed to provide ballast during stock sales against the backdrop of sustained budget deficits and sticky inflation. We like gold as a portfolio diversification device.
However, in the short term, there is a risk that you are focusing too narrowly on the trends of periodic macros and overlooking the broader story. India focuses on long-term growth drivers (fast digitalization, lucrative demographics, urbanization) that strengthen India’s medium to long-term potential.
Two themes we believe presents attractive opportunities: the rapidly expanding consumer base and the increasing importance of domestic capital markets in the ways Indians save, invest and spend.
Q) How do you see foreign institutional investors (FIIs) relocating their portfolios in India as real-world rates become higher globally?
a) Mega-military is restructuring India’s economy and driving structural change that presents both opportunities and challenges. The young and expanding workforce in a fragmented geopolitical landscape, rapid digitalization and resilience strengthen India’s long-term growth outlook.
We believe that market dislocation can create opportunities for security choices. Over the medium to long term, there is an opportunity to tangle mega powers such as digitalization and demographics to expand the consumer base that spends beyond essentials.
Large Indian stocks for global investors with long-term views have attractive risks.
Q) How does evolving geopolitical landscape affect investors’ feelings about India compared to other emerging markets?
a) A sharp escalation in global trade tensions and extreme trade policy uncertainties has led to the sale of a wide range of risky assets.
The US is likely to end with much higher tariffs than expected a few weeks ago. Even after pausing, we estimate that the average effective tariff rate is currently around 20%.
We carefully leaned on risk and returned the tactical horizon from 3 months to 6-12 months. We, including us and Japanese stocks, will increase our stock exposure.
But we look forward to an ongoing volatility and a potentially sharp reversal. Selectivity across sectors and securities is important, and we are wary of chasing momentum.
India is not affected by global market volatility. While broader risk-off moves, tougher financial positions, or external shocks can weigh performance in the short term, we believe that their structural growth narrative remains intact.
Q) Indian stocks are working better than many global peers. Do you think this trend continues in 2025, or are there any risks investors should be aware of?
a) Indian stocks have been trading along a wide range of emerging markets so far this year. The valuation reset for medium and small stocks was offset by the benefits of lower energy prices and the possibility that India will take advantage of rewiring the global trading ecosystem.
Indian stocks are not spared from the volatility caused by uncertainty in global trade policy. In the country, the emotional slump driven by easing economic growth has also been heavy in the market over the past few months.
Use Equity Risk Premium (ERP). This reflects revenue growth and interest rate expectations, and is used as a preference valuation meter. India’s estimates at around 4.9 are roughly in line with its long-term average.
Assessment of traditional indicators such as positive prices to multiples of revenues is approaching historic averages. According to LSEG data, MSCI averaged around 18 times over the past 20 years, down from the all-time high of October 2024.
The cyclical slowdown is partly due to trade tensions, and considers short-term corporate revenues.
There is a risk of missing a wider shift by focusing too narrowly on cyclical slowdown. The growing digitally-enabled middle class is restructuring both consumption and capital allocation. A variety of investment opportunities are open, for example, including financial services, consumer staples, retail, digital platforms and e-commerce.
Q) How do you view India’s fixed income market in the context of global interest rate trends and domestic monetary policy?
a) Signs of easing growth and easing inflation have led to the Reserve Bank of India taking action. The central bank lowered its inflation and growth forecasts at its April meeting, while lowering its repo rate by 25 basis points at its April meeting, and changed its April meeting from neutral to courtesy.
We monitor India’s fiscal and monetary policy measures to mitigate the impact of tariffs and to maintain economic growth.
As short-term interest rates drop, we expect further rate cuts over the next five years, which are currently set to rush a flat yield curve.
Unlike markets such as the US, where long-term bonds face risks from higher-up interest rates, Indian government bonds are not exposed to such risks and are priced better in our view.
We consider government bonds in India to be an attractive source of income offering higher yields than major global markets. The future inclusion of Indian Government bonds in the JPMorgan GBI-EM index is poised in our view to increase foreign demand for Indian debt, provide further support for this asset class and strengthen its role in a diverse portfolio.
Q) Where do sectors or asset classes that are most vulnerable to global uncertainty in 2025 see the most opportunity?
a) Trade tensions have led to the sale of risky assets. The US has suspended newly announced tariffs in most countries for 90 days. This is a major development.
We carefully lean on the risk and return the tactical horizon from 3 months to 6-12 months. We, including us and Japanese stocks, will increase our stock exposure. But we look forward to an ongoing volatility and a potentially sharp reversal.
Selectivity across sectors and securities is important, and we are wary of chasing momentum. US technology and global banks, particularly European banks, are being hurt by extensive sell-offs.
The long-term US Treasury failed to provide ballast during stock sales against the backdrop of sustained budget deficits and sticky inflation. We like gold as a portfolio diversification device.
(Disclaimer: recommendations, suggestions, opinions and opinions given by experts are unique. These do not represent views of the economic era.)
