India's structural growth story remains intact but faces near-term headwinds: Market analyst Bhawna Chhabra

Despite the recent global trade tensions sparked by new reciprocal tariffs, India's long-term economic growth prospects remain strong, according to Bhawna Chhabra, Senior Market Analyst at Rosenberg Research.

In an interview with CNBC-TV18, Chhabra acknowledged that while India is not immune to these global developments and faces potential challenges in the short term, its fundamental growth story is still positive. She noted, "India has been one of our most favourable calls over the past few years. Yes, there have been speed bumps in the road here as well."

Chhabra pointed out that India's economy has a degree of insulation from the direct impact of goods tariffs because its dependence on goods exports is relatively low compared to other major exporting nations. Furthermore, India's strength lies in its services exports, which are less directly affected by these tariffs.

For investors looking at India, Chhabra suggested that the financial sector appears promising due to its domestic focus. Additionally, with the Reserve Bank of India (RBI) expected to cut interest rates, Indian bonds could also present an attractive opportunity.

Turning to the United States, Chhabra painted a more cautious picture. She believes that the new trade barriers will lead to a contraction in trade, which will negatively impact earnings growth for US companies and ultimately push the markets lower. She also highlighted the "multiplier effect," where a falling US market can lead to reduced consumer spending, business hiring freezes, and potential layoffs, further weakening the economy.

Despite recent corrections in the US stock market, Chhabra argued that valuations still remain high compared to historical averages, suggesting there could be more downside to come. In this environment, she recommends a "flight to safety" for investors, favouring assets like US Treasuries and gold. Within the equity market, she suggests focusing on defensive sectors such as utilities and consumer staples, while being cautious about consumer discretionary stocks.

Looking ahead, Chhabra anticipates that the trade uncertainty will likely persist. She stated, "Uncertainty is a hallmark of Trump administration. If we remember, Trump 1.0 was not very different. I think it's a bigger and a more louder version of what we saw in Trump 1.0. So, we do expect the uncertainty to continue."

Watch the accompanying video for the full interview.