Markets ride the Trump 'put' as TACO trade gains ground: Economic Times `9th june 2026

 Idiosyncrasy and vicissitude stamp Donald Trump as an exceptional president. Right from the time he imposed his tariff policy to the start, progress and possible end of the US war on Iran, his words have driven markets in all directions, though in a predictable manner. He has been the biggest market mover in recent times. But has there been any method to this from the markets' PoV?

The answer is yes. Let's go back to the tariffs imposed in April 2025. Game theory would have suggested that all other countries, at least the big ones, should have got together to announce similar tariffs to force some amount of backtracking. But the EU, Britain and Japan all went to the US and signed deals under which they had to open more of their markets besides promising to make more investments in the US. It was a win for the US, as the base tariff rate was 10%, up from an average of 3-4% earlier.

Other countries continued to try to work things out amid announcements of higher tariffs for dealing with Russia, among other things. Then there was backtracking as goalposts shifted. This then led to TACO - Trump Always Chickens Out. While dispensations to different countries kept changing and gave the impression of chickening out, anyone following the market would have observed a distinct pattern..

First, higher tariffs meant that stock indices went down. NYSE Composite had a low of 18,743 on April 5, 2025, and a high of 23,602 on February 12, 2026, before the US Supreme Court overruled Trump tariffs. Currencies would weaken, with dollar strengthening. But when the chickening out took place, there would be a reversal of fortunes. Hence, the derivative trader had a blast.

If one believed that higher tariffs would be followed by lower tariffs, then it made sense to buy during the falling phase and sell later at a higher price, that is, going long. This worked well in both stocks and currencies.

Now, in the case of the US-Israel vs Iran war, while March was a phase of tough talk, end of the war has been spoken of by Trump many times before a deal between Washington and Tehran was signed this week. Every announcement that the war is almost over raises stock prices, while any continuation leads to a fall.

Just before the war began on February 28, NYSE Composite was at 23,524. By March 30, it had touched a low of 21,506. Now it is at 23,470. Thus, this yo-yo movement means traders could keep buying as indices fell, knowing well that talk of the end of the war, or even a ceasefire, would lead to prices rising.

The dollar, too, gained. Just before the war, the dollar index was at 97.56, signifying a weak dollar. By March 30, when the US was on top, the index had crossed 100. It corrected subsequently, but crossed the 100-mark again when an agreement date was announced. Currency dealers have had a challenging time interpreting war gains and energy-price shocks throughout this period

Casualty in the war has been gold, which is no longer the preferred investment. During the tariff episode, it got a boost as a safe haven for investors. Silver and platinum enjoyed collateral benefits. But with the war now seemingly ending, upside for gold is limited, and highs of above $5,000 an ounce, observed in February, are no longer on the horizon. As dollar is stronger now, with the dollar ndex at 100, gold has lost its lustre.

Oil traders have been taking various bets on how prices would move. At one time, there was talk of oil reaching more than $150 a barrel. As signals were sent by Trump that the West Asian conflict was over - and that Iran's military had ceased to exist - prices came down to the $90s and remained there.

Now, with peace being restored and the Strait of Hormuz set to reopen, prices could go below the $80 mark. Traders and punters would never have bargained for this. This business has become more volatile than ever.

If one puts everything together, TACO has now been transformed, in derivative parlance, into the 'Trump put'. This gives him the right, but not the obligation, to go ahead with, or stop, the war. This outcome vindicates the view that options are risky.

Book review of Beyond Belief: The Science-Backed Way to Stop Limiting Yourself and Achieve Extraordinary Results: Financial Express 14th June 2026

 The Science of Mindset: How Nir Eyal’s ‘Beyond Belief’ Deconstructs the Power of Placebos

Consider these three situations. In Europe, several people go through surgical procedures without anaesthesia. There is a psychiatrist who talks to the patient and controls the mind so as not to feel pain. Recovery is fast. In a second situation a person who has been hurt is administered a balm, which reduces the pain immediately. Later it is revealed that it was not a balm but a plain cream that was applied. In the third situation a person volunteers to be part of an experiment for a pill. When he reads up on it after taking it he realises it is potent and has some negative effects. The blood pressure levels increase dramatically and the person is rushed to hospital. But all body parameters are normal. Then the person is told that he was not given any medicated tablet but just a placebo. The blood pressure stabilises.

What do these stories tell us? It is belief that drives our behaviour. The way the mind is conditioned by such beliefs can make one feel the way we do. This is the core of Nir Eyal’s book written with Julie Li, titled Beyond Belief. It is a book that uses scientific ways to stop limiting ourselves which will, in turn, help to achieve breakthrough results. By changing the way our mind works or thinks we can change our attitude to life.

Quite interestingly, he argues that placebos are useful as they serve the purpose of making us feeling better. The same phenomenon can be taken to the area of religion or belief in god, which works in an analogous manner. While praying and doing nothing will not get one far, belief and effort put together can deliver better results. Therefore, whether or not one prays, belief in an entity called god is useful. A far reaching extension of this discussion is that those who are spiritual but not religious often suffer the most and have higher levels of anxiety, phobias and depression.

Beliefs, according to the author, are the foundation of motivation in life. Efforts will matter only if we believe in what we are doing. Motivation includes three elements of ‘what to do’ to reach the ‘desired outcome’ with ‘conviction’. If any of these three links are missing or weak, it will not work. We also need to be open to feedback so that we can change our goals so that we are tuned into reality all the time. Hence everyone cannot hope to become a president or sport star just by believing that one is made for it.

Three-Part Framework

In this context the author talks of three powers of the belief framework, which is the crux of the book. The first is ‘attention’, which he describes as seeing things that help to shape possibilities.

This is important because if our mind starts seeing failure or threats, it becomes demotivating, and eventually nothing is achieved. Therefore, negative thoughts need to be kept away. This is something that one tends to be caught in and hence there is need to challenge such unhelpful beliefs. This comes from rumination which should ultimately lead to reshaping our perception, which, in turn, redirects our attention through the power of belief.

The second element is ‘anticipation’, where one should predict what to expect from any action. If we anticipate pain, then it just might come true. There is need, according to the author, to break the pain-fear-pain cycle. If we fear pain, we will experience more of it, which will confirm the danger which we anticipated. Therefore, how one conditions the mind is important whenever we form expectations.

This is why placebos work because the conscious mind understands the cure being taken and the body responds to the same as if it is curing the problem.

Here there is an interesting take on ageing which most people can relate to. The author argues that one’s belief in ageing and physical capability literally influences the biology of the being. People with positive ageing beliefs live 7.5 years longer than those with negative thoughts. Negative beliefs leads to physical de-conditioning and social isolation, which just accelerates the process.

The third element is called ‘agency’. To make positive thinking work we need to use evidence to change and make it happen. The difference between people who perform this function well will determine how one tackles challenging situations. It is not just anticipating problems but working to navigate them, which helps beliefs turn into reality. Hence there is need to focus on things which we can control. Agency, therefore, transforms uncertainty into a bridge towards concrete benefits through intentional practice. This is where prayer works through psychology and hence goes beyond plain theology.

Trap of Pure Optimism

Is all positive thinking very good and a panacea for our problems? This is a likely question to come up as the reader peruses these pages. Here the author raises a red flag and talks about how positive fantasies can backfire as they relax the body as if the goal has already been achieved. The circle of false promise traps people, leading to major disappointments. He hence prefers mental contrasting to plain positive thinking where we constantly pair future dreams with present obstacles. They hence engage with all the three powers of belief. They direct attention to realistic obstacles. They build anticipation for both success and challenges, and finally strengthen the agency trait to handle these challenges.

his book can come under the self-help category which uses psychological principles to enable empowerment of the individual. It does show that belief lies in the mind which can be made to work to take us in the right direction. But the three vital components of belief — attention, anticipation and agency are essential to make wishes come true. This is a book with a strong message to reinforce confidence in oneself and meeting challenges with a positive mind frame.

Beyond Belief: The Science-Backed Way to Stop Limiting Yourself and Achieve Extraordinary Results
Nir Eyal with Julie Li
Penguin Random House
Pp 304, Rs 999

RBI's plan to attract foreign currency : How much of it could FCNR deposits really expect to lure? Mint 12th June 2026

 https://www.livemint.com/opinion/online-views/rbi-plan-foreign-currency-fcnr-deposits-nri-dollars-yen-carry-central-bank-debt-yields-11781081669374.html

An apt policy: RBI may tighten credit later but its current focus is on attracting flows of foreign exchange: Mint 5th June 2026

 https://www.livemint.com/opinion/online-views/rbi-mpc-monetary-policy-committee-credit-foreign-exchange-forex-rupee-repo-rate/amp-11780638285109.html

Withdrawal of taxes on FPI investment in Gsec: The final frontier? Business Standard 5th June 2026

 The foreign portfolio investors (FPIs) have been in a withdrawal mode this year. One of the reasons which has been given is the system of taxation where returns become less competitive when compared with other markets.

 This has been addressed well by the government by exempting interest earned on GSecs holding from tax as well as removing any capital gains tax on GSecs. This is a big positive step that has been supplemented by the Reserve Bank of India (RBI), which now allows them to invest under the FAR regulation in securities of over 10 years duration. 

 

The important question is whether or not there will there be an about turn in the flow of funds in the debt segment? This is something which will be tested in the coming months. Prima facie, the tax rates of 20% on earnings in interest or capital gains meant erosion in real return. The prevailing thought process earlier was to have some kind of a level playing field for investors from both the domestic and foreign sections.

However, this could have militated against such investment, especially so considering that investors have been looking at other emerging markets and comparing returns. A declining rupee already lowered effective return that was compounded by the tax rate. This correction should make GSecs valuable again for investors. 

 

It must be pointed out that our GSecs are now part of global bond indices, which means that all such policies matter as investors keep rebalancing their portfolio depending on effective returns. Often investment in indices is complemented by separate investments in the Indian market to take advantage of any arbitrage opportunities. The nominal returns on bonds are fixed by the market over which no one has control. The same holds for currency movement that is determined outside the system. What we can control is the system of incentives available for investors. The government intervention here is hence pragmatic as it plugs a gap. 

With interest rates poised to rise across the world, the bond returns would be one of the clinching factors. The decision taken by the Fed in the upcoming meeting will hold the clue to the direction of interest rates in the US under the new Chairman. 

The next few months will test the efficacy of these measures as there has been a long standing demand for withdrawal of the withholding tax on FPI earnings in the debt segment. 

 

With the present measures being invoked all returns – interest and capital gains are not subjected to any tax. In parallel the RBI has also enabled them to invest in bonds of maturities higher than 10 years as well as in fresh issuances of paper.  All this should boost inflows. But ‘how much’ is the question? 

Why are FPIs exiting? Financial Express 5th June 2026

 Since the war began, global stock indices have behaved differentially. The Sensex surely has gone down from 81,287 to 75,415 between February 27 and May 22. This could give a signal that the Indian market has underperformed; however, US indices S&P 500 and DJI have gone up while the NYSE Composite is marginally down. Nikkei is up significantly while FTSE is down. German (DAX 40) and French (CAC 40) indices are down. So is the case with Brazil (IBOVESPA). But Korean KOSPI has done brilliantly while Singapore (STI) has trudged in the positive zone. Hang Seng of Hong Kong is down, as is the Shanghai Composite. Therefore, our market is not an outlier.

Yet it has been seen that foreign portfolio investors (FPIs) are in a withdrawal mode. Since March 1, they have pulled out $23.75 billion from the Indian market (equity and debt) while in the corresponding preceding 51 sessions, they withdrew $1.25 billion. The former included around $21 billion in equity and the balance in debt and hybrid. Interestingly, for the 51 days prior to the war, equity withdrawal was at $22.75 billion, with debt being positive.

Thus, the FPIs have been withdrawing funds from the equity segment even before the war began, which means it is a continuation of an earlier trend. The war has only maintained this tendency. However, in debt it was positive though marginal, which turned negative once the war began. An explanation can be conjectured here.

Decoding Herd Mentality

On the equity front, the FPIs have been bearish about Indian markets. It should be remembered that FPIs consists of myriad investors who are registered with Sebi and not a single entity. Therefore, the joint action can be taken to be some kind of group-think where decisions are taken based on a common line of thinking. One reason is the belief that some of the major stocks and sectors may be overvalued with very high private equity ratios. Generally, ratios above 30 denote overvaluation, less than 20 reflect opportunity, while the range of 20-30 could go either way.

The NIFTY pharma, FMCG, and consumption indices show ratios of ~35. It is 30 for auto, while it is less than 15 for banks, making them attractive. Here, the clue is corporate profitability. Growth in sales and profits has tended to be more in the single digit range, which indicates stability at best. This needs to change for the valuations to be justified or else, theoretically, the prices would have to correct over a time period.

The issue with stocks being considered to be overvalued is twofold. First, it makes sense for investors to exit as the upside seems limited. In fact, with the Sensex exhibiting higher volatility, it is a sign that the best is over for the time being until there is more buoyancy in the performance. The annualised daily volatility since the war began increased to 21.6% for these 50-odd sessions compared with 11.6% in the earlier period. Second, for new investment to flow, a wait and watch approach would be taken, following which a fresh round of investment would begin.

As mentioned earlier, some markets have shown remarkable resilience during these times, and investors would probably be moving their funds from markets like India, Brazil, etc. to the US, which has witnessed a general upward movement. It must be noted that ever since the central banks have been pursuing quantitative tightening, the quantum of investible funds has come down considerably. Hence, funds are being reallocated as investors search for opportunities in a wider set of markets.
Coming to the war, India’s market performance could be making FPIs cautious.

The high dependence on imported crude oil makes the trade balance jittery. While real growth is less of a concern, the issue with rupee depreciation is a consideration. The fact that the rupee is moving down lowers purchases and enhances sales, leading to net outflows. This in turn, feeds back to the currency strength as the rupee tends to be affected perversely, thus justifying the view that real returns would be weak. This is a tough nut to crack from the policy point of view.

How about debt? Ever since the war began, the bond markets have been in a different mood. Higher crude prices cause higher inflation across the world. This means that interest rates will no longer be lowered. Kevin Warsh’s appointment as chairman of the Federal Reserve was supposed to be associated with lowering of rates, which is what Donald Trump wanted. The last policy was cautious on rates. Now there is talk of rates being increased rather than lowered as inflation increases. This has pushed up bond yields. While Indian bond yields too have climbed up to cross 7% for 10 years’ maturity, there is a case of investors weighing the net return where the currency decline comes into play.

Therefore, FPIs will continue to be unpredictable in the next few months. They cannot be considered as a source of long-term capital when working out the options for closing the current account deficit gap. As long as they do not accelerate their withdrawal, it could be steady news. But the declining rupee is definitely a consideration for them as the real value gets affected.

What will the MPC do this time. BusinessLine 2nd June 2026