Benchmark indices Sensex and Nifty have been taking a beating in the Indian markets. There seems to be no end to FPI selling and geopolitical tensions globally. India’s corporate earnings for the second quarter of fiscal 2025 showed a lacklustre performance, with the Nifty delivering only a 4 per cent year-on-year (YoY) profit after tax (PAT) growth, slightly exceeding the estimated 3 per cent.
With Trump coming to power in the US what impact can Indians markets have? How can an investor make money in this current global situation? In an interaction with Business Today, Stefan Hofer, Managing Director and Chief Investment Strategist at LGT Bank (Hong Kong) shared his insights. Edited excerpts:
With Donald Trump’s victory how do you think the Indian economy will get impacted?
Trump had several key initiatives policies that he campaigned on, namely tax cuts for companies and for higher income people in the United States, increase in tariffs up to 60 per cent on Chinese products going to the US and possibly 10-20 per cent tariff on everything going to the United States.
Notably, in the last 10-20 years, supply chains across Asia became more integrated, for example today a product is manufactured in Taiwan, it would be shipped in China and some component would be made in Vietnam. So if a tariff is put on China in the coming time, a disruption in trade flow will be witnessed followed by a reduction in growth. But India is not so integrated with the Chinese production supply chain so out of the all of the major economies in Asia probably India will be the least impacted by the tariffs.
Moreover, Trump is also in the favour unilateralism, he wants to build individual deals with countries and a lot of policy change could be underway which needs to be watched out for.
What is your view on the FII outflows from India?
FII flows tend to be very volatile and they can easily reverse. It could be that some institutions are taking profits on long standing gains that they have and are sort of rotating into China or other places. I believe that India’s long term growth story is intact and transformation because of infrastructure boom is real giving it a real growth. It is also true that valuation of Indian markets are very high but we don’t think it’s so important. More important is that the current administration under PM Modi continues to build infrastructure and if you do that company’s earnings will be structurally higher and there will be less of a problem with valuations. In my opinion the flows are not the only indicator of what will happen in markets necessarily.
What is your outlook on the global markets like US, APAC, UK and India and which sectors are you bullish on?
At this time I think we would like to be overweight with US, India and Japan, we are cautious with China and Europe. Sector wise, we are bullish on technology, financials and healthcare globally in the current market conditions. In India we are following a top-down approach and we aren’t taking individual sector bets.
In Europe the peripheral part is doing really well which included Spain and Italy. They are growing very fast and unemployment in these countries has gone low but the reverse is happening in the core countries of Europe — Germany and France. In Germany, the productivity of labour has become a bit of problem and now there is news that Volkswagen is closing factories in Germany for the first time in the history.
China is facing the biggest down trend in its property market with 737 million square metre of real estate available. To counter that, the government of China announced the stimulus over a period of 3 year. This means the country will see 3 years of slow growth which has made the market more disappointed. If one wants to invest in China one can still bet on specific companies and take tactical bets on those individual names companies for those with higher risk appetite.
What will be the effect of geopolitics tensions on market volatility and what can investors do?
When negative or shocking event happens globally, for example, the market tends to be shocked for 1-2 weeks but they normalise after this as the energy supplies aren’t impacted, for example when the Israel-Hamas conflict happened.
Most of the oil trade happens through strait of Hormuz in that region which is a strategic narrow passage between Iran and UAE, till the time ships can move with ease in that region, market shock should subside post 2 weeks but if the energy supplies are impacted and oil prices jump up massively then you will have a very strong market reaction.
For such volatile time one can think about investment in gold. We are quite positive on gold as geopolitics can become more volatile under Donald Trump and in the second half of 2025 US inflation might go up again and so gold will be used as an inflation hedge and hence that will be beneficial.
But one must also remember that gold does not have any cash flows, no interest payment, no dividend, you just buy gold so you have to be confident that prices are going to increase because as opportunity cost is very high.
What are the key HNI and UHNI investing trends globally?
HNIs and UNHNIs are more open to looking at AIFs, earlier you had to have a large ticket size to look at private equity and private credit real estate, after product development in the alternative space there are now different ways to invest in alternative investments in smaller amount, so it is more accessible to people now and we also recommend 20 per cent allocation in AIFs be it private equity, private credit or commodities.