Arvind Sanger warns of market volatility as Trump’s tariff strategy unfolds

"I think the markets are going to not like this kind of uncertainty. But maybe it will be over soon. But it is a little nerve-wracking to see so many new tensions coming up every day," says Arvind Sanger, Geosphere Capital Management.

Does not seem like Trump has quite made up his mind on when to implement the tariffs.
Arvind Sanger: I think Trump is tariff happy. As we said, trigger happy, he is tariff happy. And he thinks that he can win by doing it. So, in the last few days, it has been Canada and Mexico's turn. Next, it looks like China he is going to deal with and then it is EU's turn. So, it is like rotating who gets hit on the head next. And I think the markets are going to not like this kind of uncertainty. But maybe it will be over soon. But it is a little nerve-wracking to see so many new tensions coming up every day.

But let me be a compulsive optimist here and I would say that look, it is nothing looks like very scary. Everybody knew the tariffs were coming, both in terms of quantum and the countries, there is nothing new. Now, it appears that the tariff implementation may be diluted. See, something will come, that is common sense to assume. But looks like it would be diluted.
Arvind Sanger: Yes, it looks like there is nothing going to happen for the next month for Canada and Mexico. So, definitely, there is a dilution. China, which was his original point of contention, is only 10%, and he is going to talk to Xi in the next few days or in the next 24 hours I suspect. So, we will see where that goes.

So, Trump likes to declare victory, likes to show that he is a negotiator. So, maybe all of this will turn out to be a great big PR stunt to show that he was able to get more out of it. I hope that is all it is. But I am a little more nervous that things might not quite work out quite exactly how Trump is thinking they should.


Why is the nervousness which you alluded to, is not getting reflected in the dollar index, or in the way money is going back into dollar denominated assets? I mean, if there is nervousness about where US is moving next, then somewhere financial markets should start capturing that.
Arvind Sanger: I think, for better or worse, people prefer to hide out in the dollar because US is still the tallest man standing and any tariff that he puts on Mexico or in Canada or on the EU or on China is going to hurt.

It will hurt the US but it will hurt the other countries more. So, in that sense, it is one of those lose-lose, where the US loses less and some of the other players lose more and frankly, at the end of the day, the US dollar, US treasuries are the risk-free asset that people prefer to own at this point in time.

Let us talk about India and how is it that you are dissecting the budget impact? The big question on everyone's mind is, should it be consumption versus capex? How is it that one should position their portfolios? What is your thought?
Arvind Sanger: I think both have disappointed in the last few months. I think for India to get out of its current slowdown, both will have to have elements of benefit. Obviously, the budget is more helpful for consumption. I will be honest that the reason the capex disappointed in current FY25 is because tax collections disappointed.

So, we have to question whether or not we can make the assumptions of the capex increase in FY26. So, I would be more inclined towards consumption. But I think at the right value even some infra stocks are starting to get interesting, some of the power stocks, some of the other areas that could be interesting.


The view at least with Indian money managers is that do not buy small and midcap stocks. Buy, buy and only buy largecap stocks. Is there merit in thinking like this?
Arvind Sanger: Well, the love of midcaps and smallcaps got excessive in the last few months. Every third-rate IPO of some tiny microcap company was going through the roof. So, this is a healthy correction. And yes, since the market is uncertain, since growth is uncertain, it is much better to be in higher quality names rather than going after all the second and third tier names but that does not mean that there are not good companies in the mid and smallcaps and we are certainly looking at those. But there are high quality names that I would go after even in the smaller names.

Small does not mean bad quality. But the more speculative ones and the more fly by night ones are the ones that were being bid up without fundamental supporting it, definitely I would be avoiding just counting on bull market carrying everything.