This advice is very relevant in the present-day VUCA world, where US President Trump’s policies -economic and foreign policy related- are unleashing geoeconomic and geopolitical consequences whose impact on the world is likely to be huge and profound.
The US-led advanced Western world played the leadership role in heralding a peaceful post-Second World War global order, which helped usher-in economic growth and development. The collapse of the Soviet Union and the wide acceptance of the market economy model enabled many developing countries, like India grow fast.
The US-led democratic Western world played a key role in the post-Second World War growth and development. This leadership role is now under threat thanks to the unconventional, uncertain, and hugely disruptive policies and actions of President Trump.
What are the likely consequences of these disruptive policies for international trade, global growth, and stock markets?
How should investors respond to the unfolding events?
The first major disruption during Trump 2.0 came from the ‘reciprocal tariffs’ announced in April 2025. Stock markets, globally, reacted negatively to reciprocal tariffs, but soon, most countries entered into bilateral trade agreements with the US, and a potential trade war was averted. The fear that global trade and growth would be negatively impacted in 2025 also turned out to be a false alarm: Global GDP and global trade in 2025 are now estimated to have grown by 3 percent and 7 percent, respectively.
Tariff noise will trigger short-term volatility
Weaponization of tariffs has become an integral part of policy under the Trump administration. Trump’s declaration of ‘Greenland tariffs’ to be imposed on eight European countries opposed to Trump’s plan to annex Greenland, and the united European bloc’s opposition to this, triggered fears of a trade war between the US and Europe. But soon, Trump did a TACO (Trump Again Chickens Out), and the fear of a trade war died out.
There is also a probability of the US Supreme Court giving a ruling that the reciprocal tariffs are illegal, forcing a rethink on the strategy of weaponization of tariffs. A diplomatic solution to the Greenland crisis also cannot be ruled out.
Whatever the outcome, the news and noise related to the event will influence the market trend in the near-term. The long-term trend, however, will be dictated by economic growth and corporate earnings. Investors should focus on these fundamental factors.
Robust growth but weak earnings growth
India’s GDP growth post-COVID has been impressive, with 8.1% average annual growth during the five years from FY22 to FY26, factoring in the advanced estimates for FY26. This makes India the fastest-growing large economy in the world during this period.
Even though it is the low base of the Covid year, FY21 makes this growth rate look impressive, it is a fact that India has done well in achieving high growth despite many headwinds like Trump tariffs. Also, the fact that this high growth was achieved with financial stability makes the quality of growth superior.
However, the significant weakness of this growth is that corporate earnings growth declined after the initial spurt during FY21 to FY24. Corporate earnings growth declined sharply from 24 percent CAGR during FY21 to FY24 to 5 percent in FY25.
The underperformance of the Indian market began with this sharp dip in corporate earnings. In the ultimate analysis, the market trend will be dictated by earnings growth. Therefore, for a decent rally in the market, earnings growth has to revive.
Despite many headwinds Indian economy is expected to grow by 7.4 percent in FY26. However, the low inflation rate has dragged the nominal growth rate down to an estimated 8.1 percent in FY26 against the Budget estimates of 10.1 percent. This low nominal GDP growth has impacted earnings growth in FY26. With inflation rising to normal levels in FY27, nominal GDP growth and corporate earnings growth will improve in FY27, hopefully facilitating a moderate rally in the market.
Stay invested and continue to invest
In this VUCA world on steroids, geopolitical noise will impact the market, causing heightened volatility. Stock markets have an uncanny ability to climb all walls of worry. Markets will climb the Trumpian wall, too. Personalities and events are temporary; economies and markets are permanent.
(The author is Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
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