Red alert on Wall Street? India and world prepare for potential crash as Wall Street’s benchmark S&P 500 is now trading at valuations similar to the historical major market crashes, with the CAPE ratio surpassing 30. To put things into perspective, these symmetrical levels were observed before the 2008 financial crisis and dot-com bubble burst.
Meanwhile higher valuation makes the perfect bubble in the market also inflation remains high; above the Federal Reserve’s 2% target, soaring at 3.5%. Hence America’s central bank is forced to keep interest rates elevated thereof making mortgages more expensive, credit card debt more irksome, and business loans out of risk limit. The heat of inflation is faced by an average American consumer who is responsible for funding 70% of the US consumption economy.
Moreover, the U.S. national debt time bomb is ticking quickly, surpassing $34 trillion, viz. $100,000 per American citizen. This burgeoning debt burden creates a long-term economic slowdown that might take decades to recover.
Tariff comes as a speed bump at a very crucial time. With an average of 18% trade tariff levied on Goods importing to US; disrupting the Global supply chain, hurting business and lastly consumers worldwide.
Additionally, what makes things worse is the concentration of valuation in the magnificent 7 stocks. Nearly 30% of the S&P 500’s total market capitalization is held by Nvidia, Apple and Microsoft, this means a selloff in one could eventually kick-off the snowball effect in the Capital market as a whole. According to Goldman Sachs analysts, there are 35% chances of US going in recession next year.
How can India navigate? Threats & Opportunities!
Historically data pattern shows a similar resemblance of financial crises 2008 and Pandemic crash, emerging markets like India’s Nifty 50 stumbled down by 50 & 35 percent respectively, mimicking US market sentiments.
According to financial experts “Foreign portfolio investors typically respond to U.S. market crashes by reducing exposure to emerging markets. India, despite its strong fundamentals, often experiences significant outflows during such periods of global uncertainty.”
The sudden outflow of foreign investment at the time of crisis depreciates the value of
Rupee against the U.S. dollar. A weaker rupee makes imports more expensive from crude oil to electronics resulting in higher inflation at a time when consumers can least afford it. Indian business with American exposure could face a rough patch, India’s service sector powerhouse IT industry, whose major revenue chunk comes from U.S. clients, might see both immediate stock price corrections and longer-term growth challenges.
The Optimism!
There is a silver lining over dark clouds. Amid challenges lie significant opportunities. As Investors across the world and Global fund managers are trying to mitigate the risks by avoiding over exposure in the already inflated US capital market. Emerging BRICS economies like India, expected GDP growth for FY 2025 is 6.5%; fastest amongst developing economy.
According to senior economist “India’s consumption story remains intact, regardless of global market fluctuations, our middle class continues to expand, urbanization proceeds apace, and digital transformation is revolutionizing how businesses operate across sectors.”
Perhaps, market corrections are an integral part of the Capital market, it is necessary to wipe out the bubble from the market, making a bigger picture more visible. Preparation rather than prediction should be a guiding torch. Always remember having No position is also a position in the market i.e. patiently waiting and watching the market with cash as hand and ready to grab the opportunity.
Veteran fund manager Shri Nilesh Shah advises “Times of market distress separate investors from speculators, those who understand their risk tolerance, investment timeframe, and the fundamentals of their holdings typically navigate volatility much more successfully.”
“Be fearful when others are greedy, and greedy when others are fearful.” famous quote by Oracle of Ohama Mr. Warren Buffett. This strategic financial insight may soon become relevant for investors in the near future.
Golden opportunity – As Gold prices surge with weakening US dollar and Tariff war, Gold has naturally become a safe heaven for Indian Investors. This could possibly avert the challenges posed by crisis as India is one of the largest gold consumers in the world.
Rising prices will eventually benefit the gold investors and will further strengthen the Indian economy.
According to Yeap Jun Rong Market expert at IG ” The anticipation of April 2 US reciprocal tariffs has prompted investors to hedge against market volatility by moving into gold.” Gold crossed all time high ?91300 per 10 grams on MCX Multi Commodity Exchange, posting best quarter since 1986. US Gold futures also surged $3171.80 per ounce.
Having said that amidst chaos and noises in the market Indian investors need not to worry but vigilant. Rise in Gold prices, attractive valuation in the capital market and the possibility of foreign cash flow in India for better, safer and stable investment opportunities. Investors can in cash this chance and build long term wealth.
