Investing.com -- U.S. President Trump’s sweeping move to impose reciprocal tariffs on all trading partners, with India facing a 27% duty on its exports, has prompted a mixed reaction from market strategists, who see both insulation and emerging risks for the South Asian economy.
BofA said India appears relatively well positioned amid the tariff escalation. India contributes only $47 billion, or 4% of the U.S. trade deficit, and its exports to the U.S. account for just 2% of GDP.
This makes India competitive relative to emerging market peers facing tariffs as high as 46% on exports to Washington.
Indian goods exports to the U.S. in calendar year 2024 totaled $80.7 billion, with tariff exemptions covering 279 items valued at around US$5-8 billion.
However, the direct impact, estimated at a worst-case scenario of about $20 billion or less than 50 basis points of India’s GDP, may only be part of the story.
There is a potential cascading effect: lower import tariffs that could dent domestic manufacturing and $28 billion in import tax collections, delayed capital expenditure decisions, slower credit growth, and a widening trade gap if India increases imports from the U.S.
These risks, coupled with a broader environment of global trade uncertainty, could weigh on currencies and prompt a flight from equities.
Jefferies echoed a cautious tone, highlighting that while the headline tariff of 27% on India is moderate compared to higher tariffs imposed on countries like Vietnam and Thailand, the broader U.S. economic outlook presents challenges.
The firm noted that key export sectors, notably IT, pharmaceuticals, and autos, should experience limited direct impact.
India’s software exports, valued at $103 billion in FY24, remain unaffected, and the pharma industry is temporarily exempt from tariffs.
Analysts expect a potential rally in U.S.-focused generic pharma stocks, naming companies such as Lupin (NSE:LUPN), Dr Reddy’s, and Zydus as best positioned for the near term.
In the IT sector, despite no direct hit from the tariff order, there are concerns over indirect repercussions from a slower U.S. GDP growth rate.
While on-shoring and tighter immigration norms could pressure margins, recalling the previous tightening of the H1B visa regime, major players like Tech Mahindra (NSE:TEML) and HCLTech, as well as mid-cap firms with favorable vertical exposure, appear better positioned to withstand these challenges.
Sector-specific risks extend beyond technology and pharmaceuticals. In autos, companies with high U.S. export exposure, including certain OEMs and auto component makers, are likely to feel the pressure, as are chemicals and solar sectors.
Firms such as Navin Fluorine, PI Industries, and solar specialist Waaree could face significant headwinds, with the latter also subject to an additional 14.5% customs duty.
