Will Uncle Sam gatecrash the much-awaited party on Dalal Street?

NEW DELHI: Will Uncle Sam gatecrash the much-awaited party on Dalal Street?

US President Donald Trump imposed fresh tariffs on Chinese imports on Friday, sending Wall Street shares tumbling in overnight trade.

And at Jackson Hole, US Fed Chair Jerome Powell stopped short of mapping out a clear-cut path for policy rates.

Market watchers said the developments would surely have some adverse impact on the enthusiasm that Finance Minister Nirmala Sitharaman’s ‘mini-Budget’ created in the domestic market on Friday.

The FM unveiled a slew of measures post market hours on Friday to provide the much-needed healing touch to the economy and markets. She announced the much-awaited withdrawal of new tax surcharge, restoring the pre-Budget provision on long and short-term capital gains for both overseas and domestic investors.

The tax rollback is expected to have a favourable impact on foreign inflows next week, if global investors hold their nerves over trade war concerns. Data showed FPIs pulled out Rs 23,000 crore from domestic equities in July and August, after the Budget proposal to levy the surcharge on higher tax-income groups affected 40 per cent of FPIs, operating as trusts or AoPs, and made investment in Indian equities unattractive.

“With the withdrawal of the surcharge on key investor categories like FPIs, inflows into the market is expected to improve,” said Vijay Chandok, MD & CEO at ICICI Securities.

Besides, the FM also tried to ease liquidity flow to make loans cheaper in order to boost consumer demand; unveiled steps to boost demand for cars to address the ongoing slowdown in the auto mart and introduced a transparent mechanism to end alleged tax harassment of businesses.

Sitharaman also offered some pain balm to the NBFC sector, by easing bank funding to them, asking NHB to release an additional Rs 20,000 crore liquidity to HFCs, allowing them to use aadhar-enabled KYC for onboarding customers and proposing a scheme for better synergies between PSBs and NBFCs to reach last-mile customers.

The FM also promised a more comprehensive review of the recently imposed HNI surcharge on incomes in FY22.

But before the domestic market could enjoy the benefits of the relief package, US President Donald Trump announced his decision to retaliate against China's latest tariffs, escalating the trade war with Beijing.

Trump said the tariff on $250 billion of imports already in place will be raised to 30 per cent from 25 per cent on October 1. He said the remaining $300 billion worth of goods will attract 15 per cent tax (and not 10 per cent) from September 1.

He also asked US companies to look for alternatives. Trump's decision was in retaliation to China's decision to impose additional tariffs on $75 billion worth of US goods.

“No country can completely displace China,” said market veteran Ambareesh Baliga. “But whatever business moves out of China, if even a small quantum comes to India, it will be big.”

The announcement sent US stocks plunging 2 per cent and is expected to have a bearing in markets in the rest of the world on Monday.

And in Jackson Hole, Fed Chair Jerome Powell stopped short of giving the markets a clear path ahead on policy rates. He did say that the US central bank will act as appropriate but noted that it could not set all that right through monetary policy, if the trade war hit business investment and confidence and contributed to deteriorating global growth.

Reuters reported that the overall tone of his statement may disappoint investors, who had been expecting the Fed to cut rates at its September meeting and possibly several more times this year.

These adverse cues coming ahead of June quarter GDP numbers, which are widely expected to paint a grim picture for the economy next week, and the expiry of August series futures and options contracts are unlikely to allow the domestic market any chance to rejoice the FM’s booster package and may make the indices continue roller-coaster ride.

But analysts said they expect India to outshine others now as it was only market that was falling when global peers were creeping higher.

They feel while market’s upside could remain capped in the near term, escalating trade war could bring back focus on the domestic stocks.

“It will be seen as an opportunity for India to take over what has or could be ceded by China. Besides Indian stocks have seen significant correction, leaving little room for further downside. The government is now taking active steps to kickstart the economy, and revive the capital markets,” said Umesh Mehta of Samco Securities.

The Chinese stock market, which is deemed worst hit by the trade war, is down just 0.4 per cent this month, while Indian stocks have fallen 3.5 per cent. “Monday session could see some knee-jerk reaction on either side, but Nifty could move towards 11,1000-11,200 levels,” Mehta said.

Sunil Jain, Head of Research at Nirmal Bang Securities, said the actions the US and China take are volatile in nature: they would announce some steps one day, and make contradictory statements the next day.

“There can be days of ups and downs, but I don’t see these international developments triggering fresh selloff in India,” Jain said.