Today, we’re diving into some crucial updates about the ongoing US-China trade saga and ETF investing.

US-China Trade and Global Economic Impact

The US-China trade tension has escalated further. Recently, China has been subjected to tariffs of 104%, a staggering number that’s even hard to quantify. Both the US and China seem determined to stand their ground, and there’s no sign of either side backing down anytime soon. China has even released a white paper on the China-US trade dispute, signaling that they don’t expect much relief in the near future.

There’s growing speculation that China is dumping its US Treasury holdings, which reportedly stand at about $760 billion. As a result, US Treasury yields have been rising, with the 30-year bond now nearly at 5%. This dramatic rise in yields undermines the initial goal of putting tariffs in place to bring down these yields. The Trump administration’s strategy to lower the dollar’s value, reduce yields, and move manufacturing back to the US has yet to yield the expected results. In fact, the world has been thrown into a state of economic uncertainty as a result of this ongoing situation.

Despite the US’s considerable strength, it’s increasingly evident that the US may find it difficult to survive without Chinese imports. The situation has become a bit of a standoff, with both nations pushing their limits. As for India, there’s still no clarity on its negotiations with the US, and a resolution seems distant.

At this point, we cannot be sure whether the worst is behind us. A single statement from either side could send markets into a tailspin again. As it stands, the market remains extremely fragile, even after the recent declines. The uncertainty is palpable, and we’re in a holding pattern, waiting for the next cue.

Where is the market headed?

Market Overview

Today’s market was a relatively narrow day. The Nifty’s high for the day was 22,468, while its low was 22,353, reflecting a mere 120-point difference. This points to a market that is waiting for the next trigger. If that trigger is positive, the market could fill the current gap; if it’s negative, we may see another retest of the recent lows. Right now, the trend is leaning negative, with the short-term outlook remaining uncertain.

The Nifty closed down by 0.61%.

Nifty Next 50

The Nifty Junior was flat, down just 0.24%.

Nifty Mid and Small Cap

Mid-caps had a better day, and although small caps were down by 1.05%, these losses are still considered manageable, given the market’s current volatility.

Nifty Bank Overview

Post the RBI’s monetary policy announcement, the repo rate has been cut, and growth forecasts for FY26 have been slightly revised down from 6.7% to 6.5%. While this represents a minor reduction of 20 basis points, it’s still a signal that uncertainty is prevailing. However, the situation is not as dire as it might appear, and India seems relatively insulated from the ongoing US-China standoff. Growth may be slower than initially expected, but the fundamentals for India remain intact.

In sectoral performance, we saw the banking sector take a hit with the Nifty Bank index down half a percent.

GOLD

On the other hand, gold continued its stellar performance, up by 2.5%. Gold has been a standout performer, indicating that things may not be as stable as they seem in other sectors.

Advance Decline Ratio

The broader market breadth showed mixed results. The number of decliners outpaced the gainers, with 340 stocks declining compared to just 160 stocks advancing.

Heat Maps

State Bank of India faced significant losses, down 3.4%, which is a big blow to a major banking stock. IT stocks also suffered, with Wipro down 4%, Infosys, TCS, and HCL Tech all falling by nearly 2%.

Sectoral Overview

PSU banks, were hit hard, with the sector down by 2.5%. The pharma sector continued its downtrend, partly due to concerns about potential tariffs being imposed globally. MNC stocks and consumption stocks were among the few gainers in the market.

Sectors of the Day

Nifty FMCG Index

In contrast, the FMCG sector showed some strength after a while, buoyed by signals from the RBI that rural demand and consumption are picking up. Stocks like Godrej Consumer Products, Britannia, and others in the FMCG space performed well today.

Story of the Day : ETF Investing – An Insight into the Pitfalls

Today we’re discussing the nuances and potential pitfalls of ETF investing, something many investors may not be fully aware of. Exchange Traded Funds (ETFs) are a popular investment vehicle, often touted for their low cost and liquidity compared to mutual funds. However, there are several aspects of ETFs that investors should be cautious of.

To put things in perspective, there are 244 ETFs listed on the National Stock Exchange (NSE), but only 36 of them trade more than 10 crore in turnover on a given day. This low liquidity is a red flag. In a market that trades lakhs of crores daily, it’s surprising that ETFs are not seeing higher trading volumes.

ETFs are essentially like mutual funds, but with the key difference that they trade on exchanges, allowing for real-time price discovery. They are mostly passive funds, tracking indices like the Nifty or assets like gold, silver, or liquid debt instruments. While mutual funds calculate the NAV at the end of each day, ETFs allow for trading throughout the day, offering investors the potential to buy or sell based on real-time price movements.

Liquidity and Price Discovery Issues

The allure of ETFs is that they are usually more cost-effective than mutual funds, with management fees typically ranging between 0.25% and 0.75% annually, compared to 1% for most mutual funds. However, the liquidity of these ETFs in India leaves much to be desired. Only a handful of ETFs see significant trading volumes, such as Nifty Bees and Gold Bees, with other products languishing in relative obscurity.

The real problem lies in price discovery. ETFs are supposed to track their underlying assets closely, but on volatile days, there can be significant deviations between the ETF’s price and the NAV of the underlying index or asset. For instance, when markets gap up or down sharply, ETFs may not reflect these changes accurately, leading to wide spreads and poor execution for investors.

Key Takeaways for ETF Investors

ETFs Are Not Foolproof: Just because an ETF is listed doesn’t mean it’s a well-traded instrument. Some ETFs suffer from poor volume, making them unsuitable for large trades.

Low Liquidity: Many ETFs in India have low trading volumes, which can result in wide bid-ask spreads and poor execution of buy and sell orders. Always check the liquidity of an ETF before investing.

Market Making Inefficiencies: In volatile market conditions, ETFs may not track their underlying assets accurately, leading to significant tracking errors. On gap-up days or gap-down days, the ETF price might diverge significantly from the NAV, costing you more or getting you less than you expect.

Limit Orders Are Safer: Given the liquidity issues, avoid placing market orders for ETFs. Instead, use limit orders to ensure better control over your execution price.

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