Trump Tariffs, GST Reforms - Should you be worried or elated?

Janmey Shukla
Sep 8
7 min read

Large and quick profits . . . are sufficient to dull the public’s critical faculty, just as they sharpen its acquisitive instinct. - Benjamin Graham

2020-2024 was one of the most exciting times to be in the markets, all stocks were reaching new heights, most funds were performing well and people wanted to make more and more money by investing in the markets. But the last year has proven why in the happiest of times the most caution needs to be exercised.

The NIFTY 50 and SENSEX have given negative to no returns over the past year. The midcap index [1] is very flat but the concerning factor here is the smallcap index [2] - it has given ~ -5% returns over the past year. Everyone wants the highest returns, but only looking at past performance is the biggest fallacy we advocate against.

Over the past few months, whenever we receive a request to invest more via lumpsums - we have requested our clients to put in money in 2 ways - Hybrid Funds and staggering your investments.

Why, you may ask? We’ll get to that. But, first let me explain why are we cautious in these times.

Why are we cautious?

What goes up, must come down. - Common saying

First, the answer that is not data heavy -

We heavily believe in the cyclical nature of markets and beating market sentiment.

The Cyclical Nature of Markets - There has been no asset class that has constantly given the best returns. Whenever an asset class consistently starts outperforming others, that’s a cautionary signal to get out. And over the course of 2020-2024, equities has been the top performer for the patient investor. But if you notice below, whenever the markets overperform, there is always a span of underperformance succeeding it. Other asset classes then end up giving better returns. People lose out on profit making capabilities over the next few years on their aggressive investments and start regretting investing altogether.

Beating Market Sentiment - We believe in not following the masses. Whenever the people around us, in media and on the internet start telling you how you can make the best returns in a particular asset class - we start cashing out. The masses always lag behind when it comes to the value when you should be buying an asset.

Sentiment of the masses is a lagging indicator [4]

Second, the data intensive answer -

Indian Growth on the slowdown? - India has successfully become the 4th biggest economy in the world - with a GDP of more than $4 trillion in 2025 [5]. That’s a testament to our growth in the past 15+ years. But GDP growth has seen a slowdown over the last few quarters. We aren’t seeing the aggressive GDP growth that we were seeing during pandemic times and even during the pre-COVID era. The bigger reason to worry is the middling consumption and wage growth. Wage growth has been somewhat stagnant in both rural and corporate India. And, key indicators of demand like vehicle sales, housing and personal loans are slowing down from the tailwinds of the COVID era. This coupled with the high valuations causes us to practice caution when it comes to equities. We hope that the GST reforms help with the stagnating consumption - but we can only hope.
Growth and consumption indicators compared throughout the years [3]
Corporate growth slowing down too? Boom periods in the economy tend to show expanding revenues as well as margins. During an efficiency-led profit growth cycle, margins rise, but sales remain sluggish. We're in such a cycle now. Corporate margins are near lifetime high levels, but sales growth has petered out.
Corporate revenue growths by sector is un-exceptional [3]
Are stocks on a clearing sale? Short answer - no, quite the opposite. Long answer - also no, but I’ll explain why. TTM PE stands for Trailing Twelve Months Price to Earnings. It indicates the price of the stock in relation to the sum of earnings for the past year. Small and midcaps have seen a surge in valuations post-COVID. And they saw a rally which led them to valuations with 46x the long term average. When they peaked, we saw a deep drawdown (post Oct 2024). We are now reaching a similar valuation (44x right now). A sharp drawdown from here due to inflated valuations and some of the other factors above won’t be easy to stomach.
Small and midcaps are trading close to all time high valuations. It’s time to exercise restraint [3]

Why it pays to be cautious?

Caution is the eldest child of wisdom. Victor Hugo

The Cost of Mis-Timing Equities: Many investors believe timing doesn’t matter because equities always outperform in the long run. This is a misconception. Equities can underperform for extended periods, and entry timing significantly affects outcomes. The graphs below show that when invested at the wrong time, equities can take up to 15 years to catch up to debt returns and only then start outperforming them. What’s the common thread between all of these examples: entry at a very high valuation. Even if equities do outperform conventional investments in the long run, it is still heavily dependent on how and when you decide to invest.

These 3 graphs show that debt can outperform equities for even a span of 15 years. Equities is not a place for blind investing. [3]

Are we worried about Trump?

"I have a lot of money — much more money than all of them put together, and all of their phony contributions put together — but you have to understand, I want to be me." President Donald J. Trump

Not really, this is just short term market noise. Trump is an extravagant businessman who does politics unconventionally. Being too far from the norm, either for good or for bad rarely works. And he is definitely bad at breaking the mould.

So, I don’t think you should be worried either. Even the markets have stopped caring about his tweets and so should you. India is in a decent place currently where the leadership is steering the country towards the correct direction - it may be just a matter of time before the pace picks up.

Edit: Soon after writing this blog, Modi and Trump have publicly come out showing signs of mending relationships and sparks of closure to trade talks. [7] His politics has a fickle nature to it.

What’s the remedy?

Chess is a game that is easy to learn but complex to master. Common saying

Well, so is personal finance.

And the answer here is simple yet difficult. Easy to say, difficult to implement.

Correct timing: As outlined above, correct timing for entering the equity markets is crucial. And the current landscape is not apt for it. We should exercise restraint and know what asset class to put our money in.
Asset Allocation: With timing, asset allocation is important. We recommend hybrid schemes right now. Hybrid schemes in mutual funds are a middle ground between debt and equities that provides a safe haven for all kinds of investors. On the conservative side lie Equity Savings Funds and Conservative Hybrid Funds. They invest a major chunk in debt but may also provide efficient taxations of equities. They have low exit load timeframes (sometimes just 7 days for some ESFs) so that if there is a drawdown, you can aggressively switch or STP (Systematic Transfer Plan). On the more aggressive side lie the Aggressive Hybrid Funds, Balanced Advantage Funds and Multi Asset Allocations. These have a large chunk of money in equities (can be rebalanced) and may even have exposure to commodities like Gold and Silver. In these times of turmoil, commodities like these can help provide a backbone. And fund managers will be able to manage your money better if the market does indeed correct.
There is a wide variety of Hybrid Funds that provide comfort for a wide variety of investors [6]
Equities with defensive sectors: A rising tide lifts all boats. Common saying COVID gave a false sense of security to most that the only way is up. Markets will keep going up forever. History tells us this is never the case. Post-covid, all sectors, all stocks (almost) rose quite a bit. There was broad based growth. Now, with the inflated valuations - that seems unlikely. Markets will correct on some sectors. But there is possibility of pocketed growth in some parts of the market. If investing in equity, it’s imperative that we keep this in mind. A sector like IT has seen it’s contribution to the NIFTY decline over the past few months to record lows. TCS’s TTM PE has dropped from 41x to ~20x. This doesn’t guarantee that IT will give absolute returns but it does signal a relatively better investment avenue. It’s these kinds of defensive bets that might help a client’s portfolio in the short term in case of a market correction.
IT’s contribution to NIFTY 50 is at it’s record low. [3]

Disclaimer

The information provided in this blog is for general educational and informational purposes only. It should not be considered as investment, financial, or legal advice, nor as a recommendation to buy or sell any financial products. Readers are advised to consult with a qualified financial advisor before making any investment decisions, based on their individual risk profile and financial goals.

I am associated with an AMFI-registered Mutual Fund Distributor. However, the views and opinions expressed here are my own and do not necessarily represent those of any mutual fund or financial institution.

Investments in mutual funds and securities are subject to market risks. Please read all scheme-related documents carefully before investing.