CLSA flags risk to market rally if global trade deals don’t materialise

Indian markets are currently in a stable phase, but this calm may not last beyond June, according to Vikash Kumar Jain, India Strategist and Head of Research at CLSA. He believes the next few weeks could determine whether current market optimism holds or fades.

“We are in a period where markets are rising based on expectations,” Jain said. “But those expectations will face a test in the second half of June and early July.”

He explained that the global market is assuming that trade tensions will ease through quick deals. However, if those deals do not materialise by the 90-day deadline – around July 9 – trade-related stress could begin to affect more sectors beyond financial markets. Jain said the impact could spread from shipping and port operators to logistics firms and eventually to consumers.

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Looking at India, Jain pointed out that the recent rally has been limited to a small group of largecap stocks. “This rally in India has been driven by the need to find a place to hide,” he said, adding that both foreign and domestic investors have cut their exposure to mid and smallcap stocks.

He also noted that India is currently the most expensive major market globally. In case of a full-blown trade conflict, Jain believes India could still outperform other markets – but that may mean falling less, not gaining more.

Jain noted that equity and bond valuations are near their long-term averages. For markets to rise further, bond yields in India need to remain steady. However, Indian bond yields are higher than those in most other countries, which could limit room for further gains.

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In terms of sector strategy, CLSA continues to prefer consumer staples. Jain said this segment may offer steady performance even if overall markets remain uncertain.

He also commented on the IT sector, which is under pressure due to global growth concerns. However, some large companies are now priced near their long-term averages. Jain said investors with a long-term view might begin to see value in these stocks once negative news slows down.

For the full interview, watch the accompanying video

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