Sensex, Nifty: Why stock market selloff is turning uglier; Black Monday, China, Trump & more

Stock market today: Indian stock investors are bracing for another round of selloff, this time deeper, after China decided to levy 34 per cent duties on all US imports and impose export controls on rare earth minerals from April 10. The tit-for-tat tariffs by the two of world's largest economies is threatening the global economic growth. India, which is discussing bilateral trade agreements with the US administration, can be no exception.

With fresh import tariffs by China, demand for US exports may decline, which could weaken the US economy. Given China's heft -- it is a top trading partner with 120 countries, including India, a higher US tariff would only lead to outsized supply of Chinese goods, hitting domestic manufacturing, Systematix warned.  

"The tariff shock is likely to herald a sharper growth slowdown, while the risk of China dumping is a disinflationary risk," Nomura said.

Nasdaq Composite plunged 5.82 per cent on Friday, with Dow Jones and S&P 500 tumbling up to 5.97 per cent, triggering a selloff in Asia today. Japan's Nikkei plunged 7 per cent while Korea's Kospi is down 5.24 per cent. Australia's S&P/ASX 200 has lost 6 per cent. 

With this US stocks are down 10 per cent in two sessions.

"A full blown trade war will impact global trade and global economic growth. The steep decline in the dollar index to 102 is favourable for capital flows to emerging economies like India. However FPIs are likely to be in a wait and watch mode before turning buyers. The total FPI selling in India up to 5th April stood at Rs 10,354 crore," said VK Vijayakumar, Chief Investment Strategist at Geojit Investments. 

To be sure, the weighted average tariffs for the targeted 52 major countries contributing 66 per cent of US imports work out to 34.6 per cent. At these levels, the average tariffs are higher than the levels seen before the
Great Depression and are akin to levels of 1900, which resulted due to the post-Civil War (1862-64) era of the US Gilded Age, Systematix noted.

"India’s real growth sensitivity to global trade volume growth is high; for every 100 bps decline/rise in global trade volume growth, regal GDP growth gets impacted by 178 bps (2008-2019). Trump 1.0 tariff war (2019) slowed India GDP growth to 3.5 per cent (1Q-3QFY20), down 330 bps from FY18 average of 6.8 per cent," Systematix said.

Nomura has maintained its below-consensus GDP growth projection of 6 per cent for India in FY26 from 6.2 per cent expected in FY25. It remained alert to downside risks. The ongoing trade negotiations could lower the tariff rate over the coming months, it said and expects India to benefit from the ongoing supply chain shifts.

In this truncated week, all eyes would be on the Monetary Policy Committee (MPC) meeting outcome on April 9, followed by key macroeconomic indicators — IIP and CPI data—due on April 11. TCS would be announcing its quarterly results on April 10. The stock market would be closed on that day on account of Shri Mahavir Jayanti.

Investments in risk assets are prone to modest returns and will likely underperform high-grade bonds and gold, Systematix said.