In the wake of recent shifts, India is pivoting from a purely bilateral focus with the United States to a more diversified and multilayered trade strategy. While the anticipated positive outcome of India-U.S. trade negotiations was temporarily derailed by sudden tariff escalations—President Trump’s double imposition of 25% tariffs related to Russian oil—the broader landscape is evolving.
In response, India has taken the opportunity to reinforce its strategic autonomy. The country is actively engaging not just with the U.S., but also with China, Russia, and the U.K. Simultaneously, negotiations with the EU are on track for a possible agreement by December 2025. This approach aims to keep multiple doors open and foster a resilient, multi-aligned trade policy.
Interestingly, this evolving dynamic has also rekindled warmer sentiments between the Indian and U.S. leadership. Recent positive statements from President Trump and reciprocal warmth from Prime Minister Modi suggest that a reset may be in the works. U.S. trade negotiators are back in India, and if progress is made, the anticipated November visit by President Trump for the Quad Summit could mark a significant thaw.
Domestically, India has responded to these external pressures with proactive economic measures. The government has trimmed the GST to stimulate domestic demand, the RBI has adopted a more accommodative stance by cutting rates and boosting liquidity, and corporate earnings are expected to rebound soon. With the Indian economy maintaining its status as the fastest-growing large economy at around 6.5% GDP growth, there is a strong case for retaining a high equity allocation. As global investors rotate out of other emerging markets, India might see renewed inflows, making it a solid long-term bet.
Therefore, for the medium-term goals (anything above 3 years), allocation to equities should remain on the higher side. Fresh money could be invested in tranches, utilizing the STP route- systematic transfer plan. Equity mutual fund schemes remain the preferred way to express interest in stocks, because of the broad-based market and rapid rotation across sectors and caps. Consequently, selected schemes should belong to categories, which allow easy movement from one cap to another, and a few examples are Large & Midcap, Multicap, Flexicap and Focus. Also fund managers, who identify the right sectors quickly, should be selected, one helpful pointer is the percentage of schemes, managed by them, which are in the top quartile during the last 2 years.
Also as always, with the global and local uncertainty, some part of the portfolio should always be invested in high-quality short-term debt funds to take care of liquidity and any contingencies. Similarly, for short-term goals, equities because of their volatile nature, should not be deployed. Equity savings schemes, balanced advantage schemes, because of their hybrid nature, or multi-asset funds may be utilized for goals with a time horizon of 2-3 years. An additional advantage of these schemes over traditional bank deposits is the much lower equity taxation which these schemes enjoy. Portfolio construction should be sequential in the order of liquidity, safety and yield-enhancing components.
In conclusion, while challenges remain, India’s ability to navigate these turbulent waters with a balanced and autonomous approach is a positive sign. We recommend clients to stay the course on equity investments, especially for long-term goals.
Regards,
Dr. Sanjiv Mehta
MD, Finance Doctor
