{"id":292644,"date":"2025-07-26T06:54:12","date_gmt":"2025-07-26T06:54:12","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/292644\/"},"modified":"2025-07-26T06:54:12","modified_gmt":"2025-07-26T06:54:12","slug":"markets-dont-short-this-market-better-days-ahead-post-tariff-resolution-ajay-bagga","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/292644\/","title":{"rendered":"markets: Don\u2019t short this market; better days ahead post tariff resolution: Ajay Bagga"},"content":{"rendered":"

“So far, there have been broad disappointments\u2014except perhaps refining margins, which have performed better. But overall, margins have declined across most sectors. Even in banking, we’ve seen higher provisions and lower margins due to rate cuts. So overall: disappointing earnings, high valuations, and unsupportive global cues\u2014that\u2019s the current story of the Indian markets<\/a>,” says Ajay Bagga<\/a>, Market Expert.
Yes, there are a lot of challenges on the global front, and a lot of news flows coming in. The earnings season was something we had high hopes for, but the domestic markets are not getting the support they should. How do you analyse the market at present?
<\/strong>Ajay Bagga: <\/strong>Yes, three major factors were pressuring the Indian markets on Friday. If we look globally, markets were down\u2014MSCI Asia closed 1% lower, MSCI Europe, midway through the session, was down about 0.6%, and MSCI Emerging Markets were down 0.7%. So, the correction was broad-based.
The reason behind this is, firstly, the strong recovery from April onwards. We saw a dip approaching the July deadlines, which were then rolled over to August 1st. As we approach that date, markets are reacting to the heavy news flow expected next week, including the Fed<\/a> meeting and the August 1st deadline. Global markets are a bit cautious, and Indian markets are reflecting that.<\/p>\n

Yes, this is the fourth consecutive week of decline for the Nifty<\/a>, largely driven by FPI<\/a> selling, which is more due to valuation concerns. Nifty\u2019s one-year forward P\/E is still around 23.5 times. The expectation was that, given last year\u2019s slowdown from March to September, this year\u2019s June YoY numbers would benefit from the base effect, and we\u2019d see double-digit overall earnings growth\u2014but that hasn\u2019t materialised.<\/p>\n

So far, there have been broad disappointments\u2014except perhaps refining margins, which have performed better. But overall, margins have declined across most sectors. Even in banking, we’ve seen higher provisions and lower margins due to rate cuts. So overall: disappointing earnings, high valuations, and unsupportive global cues\u2014that\u2019s the current story of the Indian markets.\"ETLive Events
Let\u2019s focus on sectors now. I know it’s a very stock-specific market right now, and the earnings season is clearly influencing market trajectory and stock movements. That said, given the FTA between India and the UK, are there any specific sectors on your radar where we might see continued momentum next week? Or do you think the market has already priced that in? Also, are there any other sectors worth focusing on next week?
<\/strong>Ajay Bagga:<\/strong> It\u2019s a confusing market. Let me give you two quick examples.First, pharma. Despite President Trump<\/a> promising tariffs on pharma by the end of the week, we saw a rally in the sector on Friday. That\u2019s puzzling, as pharma is one of the sectors most at risk this week.Secondly, look at the broader market: \u20b91.5 lakh crore worth of shares have been offloaded by promoters and PE funds with minimal impact cost. The market has absorbed it. The primary market is in a frenzy\u2014we are headed for a historic high in fundraises. The QIP for the biggest bank came in at \u20b925,000 crore and attracted bids worth over \u20b91 lakh crore.<\/p>\n

So, there’s ample liquidity and appetite. Retail investors are providing an exit to FPIs. It\u2019s a bipolar market\u2014retailers are buying while institutions are exiting, and that sentiment is keeping the market resilient. When this sentiment shifts\u2014and a big trigger could be the India-US tariff announcement expected around mid to late August\u2014there could be a major FPI short squeeze (currently 85% net short).<\/p>\n

So, I wouldn\u2019t recommend shorting this market. I\u2019d recommend having faith in it. We\u2019ll see better days once the uncertainty around US tariffs is lifted.<\/p>\n

Regarding the UK FTA, the UK Parliament has approved it, but it may take a year to implement. So, let\u2019s wait and see. It\u2019ll benefit labour-intensive sectors like textiles, leather, gems and jewellery, small machinery, chemicals, organics, and seafood. Indian professionals working in the UK on short-term visas could save an estimated \u20b94,000 crore annually\u2014a significant sum.<\/p>\n

Overall, it\u2019s a positive development, but the markets haven\u2019t reacted much yet\u2014possibly because implementation details are still unclear, and the UK Parliament has yet to finalise it.<\/p>\n

I\u2019d like to discuss the auto sector now. Since the India-UK FTA doesn\u2019t have a major impact on the Indian automobile sector, what\u2019s your view on this segment\u2014be it auto OEMs or auto ancillaries?
<\/strong>Ajay Bagga:<\/strong> It\u2019s surprising how auto stocks started moving up mid-week. I was taken aback because the fundamentals are quite weak. Demand is suffering. The only bright spots are tractors and possibly two-wheelers.<\/p>\n

In India, there\u2019s a divide: urban consumption is still challenged, while rural consumption is relatively strong. So, auto companies that cater to rural markets will do better. Tractor sales are expected to cross 1 million this year\u2014that\u2019s a good sign, and we should see better margins for tractor manufacturers.<\/p>\n

Two-wheelers\u2014particularly motorcycles\u2014are mostly sold in semi-urban and rural areas (60-70%). They should perform well. Once the harvest season arrives in October, we could see further recovery.<\/p>\n

However, the rest of the segment is under pressure. We\u2019re facing risks from Chinese rare earth exports\u2014EV production has already been cut in July and could halt in August if we don\u2019t get essential components like magnets.<\/p>\n

On top of that, the Trump tariffs\u201425% on auto and auto ancillaries\u2014are already in place. Global auto majors like Volvo, Volkswagen, Stellantis, and GM have each estimated earnings hits between $500 million and $1 billion due to these tariffs. So, it’s hard to see how smaller Indian players will escape the fallout.<\/p>\n

I wouldn\u2019t bet on the auto segment just yet\u2014unless India secures a carve-out similar to Japan\u2019s 15% tariff. If we get that, auto stocks could rally. But as of now, it\u2019s a binary and difficult decision. Fundamentals are weak, but news flow could flip the story.<\/p>\n

So, I\u2019d say: start nibbling slowly, but wait till August. Once there\u2019s more clarity on India\u2019s tariff treatment, especially from the US, we\u2019ll have a better sense of direction.<\/p>\n","protected":false},"excerpt":{"rendered":"“So far, there have been broad disappointments\u2014except perhaps refining margins, which have performed better. But overall, margins have…\n","protected":false},"author":2,"featured_media":292645,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3091],"tags":[108805,51,1646,108806,2441,3130,1757,16,15],"class_list":{"0":"post-292644","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-markets","8":"tag-ajay-bagga","9":"tag-business","10":"tag-fed","11":"tag-fpi","12":"tag-markets","13":"tag-nifty","14":"tag-trump","15":"tag-uk","16":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114918225724158961","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/292644","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=292644"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/292644\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/292645"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=292644"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=292644"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=292644"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}