Markets across the globe have seen a sharp decline since Friday, April 4, 2025—and India hasn’t been an exception. Understandably, investors are anxious and asking the same questions: Why is this happening? How much further can markets fall? When will they recover?
Let’s break it down.
Why are markets falling?
Several developments have led to this global sell-off:
- Tariff War Turns Serious: On April 2, 2025, the United States announced new tariffs on imports from several countries. Initially, most global investors believed that this would be a starting point for dialogue, where affected countries would sit together and try to find a peaceful solution. However, the situation took an unexpected turn. Instead of negotiating, China hit back by imposing a steep 34% tariff on U.S. goods. This move came as a surprise and raised serious concerns worldwide.
- Recession Fears: History tells us that trade wars usually don’t end well for anyone. They often result in higher costs, disrupted supply chains, and slower economic growth. That’s why investors are now increasingly worried. If these trade tensions continue for long, they could hurt economic activities and this could push the U.S. economy into a recession. At the same time, another problem is emerging—inflation. When tariffs are imposed, goods become more expensive. And when supply chains are disrupted, it becomes harder to get essential products on time. This combination of rising prices and slowing growth is making investors nervous and adding to market volatility.
- Global Sell-Off: Markets in the U.S., Japan, South Korea, and others have taken a hit. The Nasdaq and S&P 500 are down over 22% and 21%, respectively, from their highs and are officially into the bear market territory, while the Dow is down by 15%. India has followed suit amid this global uncertainty.
Now we have understood why the markets are falling, the next obvious question comes: when will the market recover? While no one can predict the exact bottom or timing of a recovery, a few key factors will shape the direction going forward:
- Global Headwinds and India’s Exposure: Around 20% of India’s GDP comes from exports, with major contributions from sectors like information technology (IT), pharmaceuticals, and diamonds. These industries depend heavily on demand from other countries, especially developed economies like the U.S. So when the global economy slows down—due to trade wars or recession fears—these export-oriented sectors are among the first to feel the heat. However, India also has a strong domestic foundation. Sectors like banking, consumer goods, and financial services rely more on local demand. These areas could prove to be more stable and resilient during global turbulence. As long as domestic consumption remains healthy, these sectors may help cushion the impact of a global slowdown on the Indian economy. The combined impact of these will determine the impact on the overall economy.
- Crude Oil Relief: Amidst all the negative news, there’s one development that brings some relief—falling crude oil prices. The OPEC+ group, which includes some of the world’s biggest oil-producing countries, has decided to increase oil production. As a result, global crude oil prices have started to come down. This is particularly good news for India, since we import a large portion of the oil we consume. When oil prices fall, India has to spend less on imports, helping in reducing our trade deficit and helps ease inflation, giving some comfort to Indian consumers and policymakers alike.
- Policy Support: Inflation is moderating, and with the RBI’s upcoming policy meeting, there’s hope for supportive measures like a possible rate cut. The government has already provided tax relief in the recent budget, which may start to stimulate demand soon. If authorities act boldly, this could create new opportunities for Indian businesses.
- Corporate Earnings Will Matter: One of the key reasons why Indian stock markets started falling—even before the global tensions escalated—was the gap between stock prices and company performance. The markets were perceived to be overvalued due to the absence of sufficient earnings and cash flows to justify the valuations. Now, with the global uncertainty adding pressure, the focus is firmly back on fundamentals. The upcoming Q4 results will be very crucial, where investors will closely watch how companies have performed in the last quarter and, even more importantly, the outlook for FY26. Strong earnings and guidance can act as a powerful signal that businesses are resilient and future-ready, even in tough conditions.
What should retail investors do now?
Yes, the near term looks turbulent. But long-term investors have always emerged stronger from such phases.
Here’s what you can do:
- Stay invested: Don’t let short-term panic derail your long-term plans.
- Review asset allocation: Match your investments to your goals—equity for long-term (5+ years), hybrid for medium-term (3–5 years), and debt for short-term.
- Diversify: Avoid overexposure to a single sector or category. Stick to well-diversified, consistently performing funds.
- Assess risk appetite: Ensure your portfolio aligns with your comfort for risk and investment horizon.
Final thoughts
Market downturns are unsettling, but they’re also part of the journey. History has shown that patient investors are eventually rewarded. Keep your focus on your goals, not the noise.
Should you have any queries, feel free to reach out to us at research@edufund.in.
Disclaimer
Mutual fund investments are subject to market risk. Please read all the scheme related documents carefully.
