How Trump's Tariffs Will Impact Indian Stocks

The big news today is the announcement of reciprocal tariffs by US President Danald Trump.

The new US tariffs are not only very high but are also broad-based. Hardly any country was spared.

In the case of some countries, the new US tariffs so high that it could potentially destroy trade relations between the two nations.

Thankfully, that is not the case with India, even though the 26% tariff is significant.

However, as the old saying goes, 'the devil lies in the details.' Various sectors of the economy will be impacted differently. Some companies will be hit harder than others.

Investors in the Indian stock market will have to understand this impact...even consider changes to certain investments.

In this editorial, we will look at the stocks and sectors most impacted by Donald Trump's tariffs.

#1 Electrical and Electronics Stocks

One of the largest impacts, sector-wise, will be felt by the Electronics Manufacturing sector.

These companies have done very well over the last few years. They have profited from the post-covid spending boom as well as several government initiatives like the PLI schemes.

Exports have been a part of the growth. Many companies in these industries have seen robust export growth. These firms have plans to continue to expand their sales to various countries. The US figures prominently here.

Thus, the additional 26% tariff will have a negative impact. The companies exporting to the US are Polycab India, Finolex Industries, Dixon Technologies, Havells, Voltas, among others. This is not a comprehensive list. Many smaller firms in these industries also export to the US.

On one hand a 26% tariff might seem like bad news but that is not the entire story. Exports don't comprise a major percentage of sales for these firms right now. So, the impact is likely to be limited.

However, many of these companies have big expansion plans which include exports. It remans to be seen if these plans take a hit or not.

To mitigate the potential impact of tariffs, these companies would change their growth strategies to diversify exports so as to not rely too much on the US market. However, investors should keep in mind that these companies cannot stop their exports to the US.

#2 Auto Ancillary Stocks

The BSE auto index was down 1% at the time of writing.

Investors are rightly wary of the new US tariffs. The US has introduced a 25% blanket tariffs on all imported automobiles. And now there is the 26% reciprocal tariff imposed on India.

This has made doing business in the US difficult for Indian auto ancillary companies. These firms are deeply integrated with the US auto industry. They won't be able to diversify their sales and production plans easily.

Of course, the same is true for auto companies all over the world. India is in the same boat as the rest of the world. However, this is a small comfort.

The sales of Indian auto ancillary firms exporting to the US will take a hit. As per media reports, the US comprises about one third of all the exports of the industry.

The biggest names likely to be impacted are Bharat Forge, Sona Comstar, and Samvardhana Motherson International. However, smaller firms will also be impacted.

Among the big Indian auto companies, the impact of the new tariffs will be minimal as these firms don't export to the US in a significant manner. The biggest hit will be Tata Motors because the US is a major market for Jaguar Land Rover.

#3 Jewellery Stocks

This is a sector that may not witness a big hit on the market because the listed firms like Titan and Kalyan Jewellers have large, diversified businesses with minimal exposure to the US.

But the sector as a whole will be badly impacted. This is because most of the smaller, unlisted firms rely heavily on the US customer. In fact, the US accounts for about a quarter of India's jewellery exports.

Jewellery is a price sensitive product. Thus, tariffs will impact affordability. This in turn, will reduce sales and hurt the profitability of the industry as a whole.

If the entire jewellery industry as a whole is negatively impacted, there will be second order effects on the larger companies too. This will only be known in time.

Meanwhile Goldiam International's share price has taken a hit. From being a major supplier of natural diamonds, it is transitioning to become a major supplier of lab grown diamonds. The US is a major export market for the company.

#4 Pharma Stocks

The biggest winner in this entire saga has been the pharma sector because it has been exempted from the tariffs.

The US is unable to impose tariffs on Indian pharma because of its dependence on Indian generics.

Thus, most pharma stocks are trading in the green today. The BSE Healthcare index was up 2% at the time of writing.

But this does not mean that investors should jump on the bandwagon due to this piece of good news.

Investors must evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making any investment decisions.

Conclusion

The Indian economy as avoided a major impact due to Trump's reciprocal tariffs.

While 26% is a significant figure, it's certainly not high enough to derail India's growth story.

In fact, economists have pointed out that tariffs on India's competitors in global trade, like Vietnam, Bangladesh, Thailand, and of course China, are much higher.

This presents an opportunity for companies, across many sectors, to gain market share in the US.

On the flip side, there is a very real threat of dumping by these countries, especially China, in the Indian market due to their inability to sell in the US. The government will have to be on guard against that.

All in all, we can conclude that Trump's tariffs won't hit the Indian stock market too much as far as the direct impact is concerned.

However, there could be negative second and third order impacts as other countries respond aggressively against the US. Such retaliatory measures have the potential to cause global trade wars which in turn, can lead to lower GDP growth around the world.

In such a scenario, India won't remain insulated.

This is a risk to Indian stocks in 2025 that all Indian investors should be aware of.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...