Tuesday’s trading session painted a familiar picture for Indian equities: persistent bearish sentiment. Benchmark indices remained flat at noon, echoing the nervousness across Asian markets and mirroring the massive $4 trillion rout in US markets on Monday. The big question on every investor’s mind: where are Indian equities headed?

Trumponomics Rattles Global Trade

The root of this unease can be traced back to the spectre of a trade war, largely driven by the US government’s policies under President Trump. The potential consequences of such a war are far-reaching, impacting economies globally, and India will not be spared. Recent data highlighting India’s weighted average tariff being significantly higher than many emerging economies only adds fuel to the fire. While US-India trade flourished post-liberalisation, the trade balance favouring India has become a point of contention. The looming threat of high US tariffs on Indian goods has understandably made investors jittery. Will Indian exports remain competitive? Will domestic industries withstand cheaper imports if India lowers its duties in retaliation? These uncertainties are weighing heavily on market sentiment.

Valuation Methods Under Scrutiny

This environment of ‘Trumponomics’ and disrupted global supply chains has undeniably taken the wind out of Indian equities’ sails. The market decline is broad, sector-agnostic, with many hitting new lows. The Nifty 50 has corrected by a significant 16 percent from its September peak. While current valuations, with the Nifty 50 trading at around 19 and 17 times its FY26 and FY27 expected earnings per share respectively, and even dipping below its 10-year average price-to-earnings ratio, might appear attractive to optimists banking on India’s growth story, seasoned market observers caution against complacency.

The global order is shifting. Geopolitical tensions, revised trade agreements, and a growing trend towards inward-looking, localised economic policies are challenging established international business norms. Added to this are the disruptive forces of new-age businesses upending traditional industries. These factors are casting doubt on the reliability of conventional valuation methods like discounted cash flows and PE multiples, which thrived in a more stable and peaceful global order conducive to growth. Kotak Institutional Equities rightly points out in a recent note that using historical averages to determine target multiples might not adequately account for the heightened uncertainty and risks to corporate earnings in this new landscape. These risks, stemming from geopolitical instability, macroeconomic uncertainties related to tariffs and trade, and rapid industry disruption, necessitate a higher cost of equity or lower multiples.

What should investors expect going forward? While historical averages can offer a comforting reference point, the current global climate demands a more nuanced approach to investment. Investors must brace for continued volatility and carefully assess risk in this evolving economic and political climate.