Indian Stocks Affected by Trump Tax Bill

Donald Trump is back in the financial news.

This time, the news is not so much about tariffs - although tariffs are still important for the stock market - but about the 'One Big Beautiful Bill'.

This is essentially the US government financial spending bill but it goes well beyond that. It contains sweeping provisions on taxes, US government spending, including military spending, and various other policies championed by Trump.

The bill has narrowly passed the lower house of US Congress and, at the time of writing, seems likely to become US law.

So, which Indian companies will be affected?

Read on...

#1 Renewable Energy

This will be, without a doubt, the worst hit sector due to this law.

The proposed law eliminates US government funding for renewable energy firms that the previous government under Joe Biden has put in place.

The US government has also been providing a 30% tax credit for those who install solar rooftop systems. This will also be scrapped.

This is a big blow to US firms in the renewable energy space. Many of these companies are dependent on government subsidies for their businesses to be viable.

In fact, this is true to an extent for the entire renewable energy ecosystem in the US, which includes Indian companies.

Two Indian renewable energy companies with high exposure to the US are Waaree Energies and Premier Energies.

The share prices of both companies were down on Friday, 23 May.

#2 Electric Vehicles

The bill also proposes to repeal grants given by the US government that are supposed to reduce air pollution, carbon emissions, or to help fund the purchase of heavy electric vehicles (EV).

This is negative for the US EV industry.

However, in this case, the ecosystem is more mature and relatively less dependent on government subsidies. Also, US consumers always have a choice to buy 'regular' vehicles.

Thus, the US auto industry as a whole won't be badly affected.

But suppliers to US EV manufacturers could see a reduction in order inflow.

Some Indian companies that are part of the US EV supply chain (mostly Tesla's supply chain) are Bharat Forge, Sona BLW Forgings, Suprajit Engineering, Varroc Engineering, Sundaram Fasteners, etc.

On the flip side the proposed bill will provide a temporary deduction of US$ 10,000 in car loan interest payments to US taxpayers if they buy a US-made vehicle.

This in turn would cushion the blow on the US auto industry and by extension, Indian companies that are part of their supply chains.

#3 Remittances (Consumption)

The proposed bill contains a 3.5% remittance tax, called an 'excise tax', that would be applicable to money sent abroad by foreign workers.

This tax is not applicable on US citizens. It is applicable on green card holders and those working in the US on foreign work visas. The original proposal was apparently 5% which has been watered down.

There are almost 3 million Indian immigrants in the US, the second-largest immigrant group in the US after Mexicans.

India received US$ 118.7 billion (bn) in remittances in FY24. Out of that US$ 32 bn was from the US.

Thus, about US$ 1.1 bn that would have come to India this year will instead go to the US government.

This works out to about Rs 10,000 crore annually.

Is this a drain on the Indian economy?

Not really.

The size of the Indian economy is US$ 4 trillion. So, this won't have a big impact.

While there will be some impact on households, especially poorer ones, we don't see a major negative impact on consumption stocks in India due to this.

#4 IT Sector

The proposed bill has sweeping provisions on immigrations, mostly illegal immigration.

However, some proposals relate to legal immigration too, specifically, the issuance of H1B visas.

The rules regarding the same are likely to be tightened. As the bill hasn't become a law yet, the potential impact on the Indian IT sector is uncertain.

Having said that, the impact is not likely to be severe. Indian IT companies have handled changes to the H1B visa procedure many times and are intimately aware of the nitty-gritty behind the same.

Companies like Infosys, TCS, HCL Tech, Wipro, and the like should handle any changes without much of an impact to their margins.

Conclusion

The One Big Beautiful Bill does present challenges for some Indian companies.

However, the biggest impact is on the renewable energy sector.

Other sectors will not be impacted too much.

Thus, Indian investors can breathe a sigh of relief.

But this episode highlights the interconnectedness of the world we like in. India is not insulated from the world. Policy changes in other countries will impact Indian companies.

Investors will have to take this aspect into account when investing in the Indian stock market.

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...