Trump tariffs threaten India’s export advantage; key sectors prepare for impact

U.S. president Donald Trump imposed 25% tariffs on Indian products on Wednesday, as well as an unspecified fine tied to energy and defense purchases from Russia. If enforced, this move could undermine India's competitiveness in exports and impact investor sentiment.

India's surplus in trade with the U.S., its biggest export market, was 1.2% of GDP by 2024. Analysts warn that halving the surplus could reduce GDP by 25-40 basis points, undermining India’s narrative of a'safe-haven' in the face of a global recession.

Indian markets have also lost their relative appeal, as local stocks underperform peers such as Vietnam and Indonesia which have signed trade agreements with Washington.

CLSA says the threat of tariffs adds uncertainty to an already expensive market.

Markets expect that the final tariff rate will be less than 25%. Export-related sectors will face severe headwinds until there is clarity.

Below is a snapshot of the sectors that are exposed.

PHARMACEUTICALS

Nearly one-third (nearly $9 billion) of India's pharmaceutical exports come from the U.S. Jefferies estimates that generics will have a negative impact on Biocon, Sun Pharma, and Dr. Reddy’s EPS by 2-8%.

HSBC warns that the earnings forecasts for FY26 could be down by up to 17%.

Textures

Exporters such as Welspun Living, Gokaldas Exports. Indo Count. and Trident receive 40-70% of their sales from the U.S. A rise in tariffs may shift some market share from America to Vietnam which enjoys lower U.S. duty rates.

OIL REFINING

Reliance Industries, state-run refiners Bharat Petroleum or Hindustan Petroleum could be hit by a proposed penalty on Russian imports. If companies are forced to diversify their crude sources, they may have higher costs.

AUTO COMPONENTS

Bharat Forge, Sona BLW and other parts manufacturers are at risk. Tata Motors Jaguar Land Rover is protected under U.S. - UK/EU trade agreements.

CAPITAL GOODS & CHEMICALS

Cummins India and Thermax have a 5-15% U.S. market exposure.

Exporters of chemicals such as Navin Fluorine and PI Industries, or SRF, may be under margin pressure. This is especially true for exports of refrigerant gases.

SOLAR EQUIPMENT

Waaree Energies, Premier Energies, and other companies consider the U.S. a major market. Waaree Energy's FY24 revenue was nearly 20% from the U.S. This also represents a large chunk of its current 59% order book overseas.

(source: Reuters)