How to rebalance equity portfolio as Donald Trump’s tariffs fuel extreme market volatility

As global equity markets reel from the body blow dealt by US President Donald Trump’s decision to impose “reciprocal” tariffs on multiple countries, domestic investors are also feeling the heat. The ripple effects of these escalating global tensions are visible on Dalal Street, with heightened volatility and sectoral churn.

Where the benchmark equity index BSE Sensex cracked nearly 6% on a month-to-date basis till April 7, sectoral indices including BSE Metal and Information Technology indices tanked more than 10% during the same period. BSE Capital Goods, Realty and Auto also slipped 9%, 8.9% and 7%, respectively. In such uncertain times, rebalancing your equity portfolio becomes crucial—not just to safeguard gains, but also to realign with emerging opportunities in the domestic market.

According to Nuvama Institutional Equities, the markets are entering a new phase of global growth scare with risks of capitulation. This is unlike the post-covid corrections (2022 and 2024) where global commodity prices were stable, but liquidity tightening caused havoc.

“Thus, in the near term, markets should brace for volatility and investors should focus on capital preservation. Today, equities are still 1 standard deviation expensive compared with bonds. Sectors with less cyclical demand/oligopolistic industry/input price tailwinds (FMCG, cement and telecom) and those with potential lowering of competitive intensity (private banks) should be preferred,” the brokerage said adding the earnings yield minus bond yields indicator has an excellent track record of predicting next one-year returns, especially during downturns. This too suggests more downside ahead.

Nuvama Institutional Equities believes that HDFC Bank, TCS, Bharti Airtel, Kotak Mahindra Bank, Hindustan Unilever, Sun Pharma, UltraTech, HDFC Life Insurance, Eicher Motors and Britannia Industries are safe havens during global risk-off.

Market watchers believe there are some significant takeaways from the ongoing chaos. One, the trade war is like to be confined to US and China. Others including EU and Japan have opted for negotiations. India has already started negotiations on a BTA with US. Two, the risk of a recession in the US has increased. Three, China is likely to be the worst-hit economy.

“Trump’s threat of another 50% tariff on China will, if carried out, almost freeze Chinese exports to US. China will try to dump its products like metals in other countries, and this will keep international metal prices depressed,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

He further added that investors may continue in wait-and-watch mode since it will take time for clarity to emerge. “However, since India’s macros are stable and we can grow at around 6% in FY26 and the valuations are fair particularly in largecaps, long-term investors can start nibbling at high quality largecaps like the leading financials. Since Trump is unlikely to impose tariffs on pharmaceuticals at this stage, pharma stocks, which are attractively priced now, appear to be good buys,” Vijayakumar added.

Brokerage Motilal Oswal Financial Services said the tariff war unleashed by the US can have a material bearing on the global economy, corporate earnings, and equity markets. It would be premature to make a definitive assessment of the tariff war’s effects, as it may have many more developments to unfold.

“While near-term challenges such as global macros, trade wars, and a weak Q4FY25 will keep the market volatile, we believe that the medium- to long-term growth narrative for India remains intact,” Motilal Oswal Financial Services said in a report.