India’s markets, often criticised for high valuations, remain a sweet spot despite the beating the Sensex and the Nifty took from the tariff-induced global uncertainties and US-China trade war of the last 12 days, some analysts believe.

Fears about the trade war’s impact on world markets have led global investors to refocus on Indian assets as a safer haven, Bloomberg has reported. Analysts have cited several indicators to support the claim.

The relatively lower bleeding suffered by the equities market indices is one of them. A gauge by MSCI Inc — which tracks indices across sectors and regions — shows India’s stocks dipping less than 3 per cent since the April 2 tariff barrage, about half the decline witnessed by Asian peers.

For example, when Hong Kong’s benchmark Hang Seng plunged 13 per cent and Japanese Nikkei declined 7.83 per cent on April 7, the Sensex tanked 2.95 per cent and the Nifty settled 3.24 per cent down.

The Indian bond market, too, has defied the global trend of bond sell-offs. The benchmark 10-year yield fell by four basis points on Wednesday after the RBI lowered rates and adopted an accommodative stance.

In contrast, the 10-year yield on US Treasuries, regarded as a safe haven, surged as much as 22 basis points after Donald Trump’s sweeping tariffs took effect. As analysts predict further declines in Indian bond yields, borrowing costs are poised to fall, helping the country weather the global trade storm.

Like China, India has the advantage of a big domestic economy that will, despite suffering from demand deficiency, preserve the growth momentum. However, unlike Beijing, which has declared war on Washington by jacking up levies to 125 per cent, India has extended an olive branch to the US. The buzz from New Delhi is that a provisional trade agreement between India and the US is likely to be sealed within 90 days.

The US-China trade tensions, which are likely to make any trade impossible between the world’s two biggest economies, and the consequent changes to the global trade patterns may help India.

Pamela Coke-Hamilton, executive director of the International Trade Centre, a joint agency of the UNCTAD and the WTO for trade and international business development, warned that global trade may shrink 3 per cent because of long-term shifts in trade patterns. But she hinted at “modest gains” for India.

That India has the potential to become an alternative manufacturing hub to China became clear recently after smartphones emerged as India’s largest export commodity, overtaking traditional leaders such as petroleum products and diamonds.

Led by Apple and Samsung, India’s mobile phone exports have soared to a record high, crossing ₹200,000 crore in financial year 2024-25, according to the India Cellular and Electronics Association.India’s attempt to fast-track bilateral trade deals with the US, the UK and EU are likely to create more opportunities.

Given India’s limited exposure to the US, the impact of the tariffs will be minimal on the country, experts have suggested. India accounted for just 2.7 per cent of total US imports last year, compared with 14 per cent for China and 15 per cent for Mexico, according to data compiled by Bloomberg.

Another advantage for the Indian markets is the support of local investors. They have pumped in more than $25 billion and cushioned a sell-down of Indian equities by foreign portfolio investors, who have remained net sellers this year by offloading equities worth over $15 billion.

“There is a clear case for investors to bet on India’s resilience,” Harshad Patwardhan, chief investment officer at the Mumbai-based Union Asset Management Co, was quoted as saying by Bloomberg.

While Indian investors’ faith has prevented the indices from sliding further, some experts have wondered whether the ordinary investors from the small towns and rural areas are taking more risks than they can afford.

The “over-financialisation” of the economy may pose a challenge to the nation’s financial stability, some experts feel.

Besides, the entire story is not necessarily rosy: India’s software and drug exporters are among those most exposed to the trade tensions.

Bloomberg reported that while valuations have come down, they are still high relative to Asian peers. The MSCI India Index is trading at 20 times forward earnings, compared with about 13 times for an Asian gauge.

An international trade expert, who sought anonymity for professional reasons, listed the three most important factors that would determine the extent to which India might gain from the current situation.

First, the number of concessions India makes in the trade deal with the US: the payoff matrix will depend heavily on the government’s ability to protect India’s interests.

Second, even if some companies are planning to shift out of China, they are not guaranteed to set up shop in India given its poor record on ease of doing business. The prospect of India benefiting from Covid did not materialise despite rosy forecasts.

Third, if the US is successful in tilting this entire trade war in its favour, the global portfolio capital might start flying back to America instead of coming to India.

“There are, indeed, opportunities but realising them will depend on several such factors,” the expert said.