The domestic equity market witnessed bloodbath during the week gone by, scaring even the staunchest bulls. Global and local events triggered the carnage. Trump’s surprise levy of import tariffs on steel and aluminium imports led to global selloff on fears of retaliation and cross retaliations between large economies of the world.

PSU banks were at the receiving end as the saga of bad loans and banking frauds kept on deepening. Irrespective of value, stocks spanning across all sectors were beaten down. Next to PSU banks, sugar stocks were also heavily marked down on expectation of bumper crop this year at 29.5 million tonnes, which will keep sugar prices subdued impacting sector profitability.  Sugar price cycle alternates; the year of excess sugar production will lead to fall in sugar prices consequently reducing the production for next season which again self-perpetuates, rise in sugar prices thereby increasing the profits for the companies. This goes on and on: Sugar companies are very good for trading but not for long-term investments.

Events of the Week

US, the biggest proponents of global free markets, was able to keep inflation below 2 per cent for a long time in spite of loose monetary policies, but all these will change permanently with the imposition of import tariffs at 25 per cent on steel and aluminium at 10 per cent. Subject to larger repercussions on the global trade practices henceforth, the inflation will rise in US, which will further push the Fed to increase interest rates harder thereby puncturing the equities rally across the world.

The world’s economic order will change, breeding inefficiencies and thereby increasing cost of capital and therefore interest rates will remain alleviated.

Source: economictimes.indiatimes.com