Which Sectors Are Affected by Trump's 50% Tariff on India?

Well, it has finally happened. The US has imposed an additional 25% tariff on imports from India.

It was a move the stock market was anticipating but the hit to sentiment has been severe. The Nifty fell 1.1% today. The broader market was more badly impacted with the BSE Midcap index down 1.4% and the BSE Smallcap index down 1.8%.

First, here's the news...

The tariff on Indian goods exported to the US will now be 50% (from 27 August), an increase from the 25% tariff imposed earlier this month.

The revised tariff will apply to most goods exported from India. There are very few exceptions like pharmaceuticals and electronics.

As per media reports, about 55% of the US$ 87 billion (bn) worth of Indian exports to US will face the new tariffs.

Which Sectors Are Affected by Trump's 50% Tariff on India?

#1 Textiles

This will be the sector to take the biggest hit.

About 28% of India's textile exports are to the US. The major articles of exports to the US are home textiles and garments.

Companies in this sector generally operate on low margins. Thus, even the 25% tariff was a significant blow. 50% tariff will render Indian textile exports completely uncompetitive.

Many large US retailers like The Gap, Walmart, and Costco, source their goods from India. These firms will renegotiate their contracts, citing the tariffs. This could result in cancellations or sales at lower prices for Indian firms. The end result would be lower profits or losses.

The worst case scenario would be a complete loss of business.

Some of the big Indian textile exporting companies to the US are Welspun India, Raymond, Trident, KPR Mill, and Alok Industries.

The specific impact of the 50% tariff on these companies will be known over the next few days as updates come in from each of them.

#2 Gems & Jewellery

The biggest impact on Indian MSMEs due to the US tariffs is likely to be felt by Gems and Jewellery sector.

India's gems and jewellery export promotion council has said that the sector would be severely impacted due to the tariffs as entire supply chains would be disrupted.

India exported about US$ 10 bn worth of gems and jewellery to the US in FY24. The figure in calendar year 2024 was about US$ 11.6 bn. This is a significant amount considering this industry is nowhere as big or fundamentally strong as others like pharma.

The articles of export to the US are diverse - diamond jewellery (natural and lab grown), gold jewellery (plain and studded), and silver jewellery.

Tariffs will result in renegotiated contract with US importers - big retail chains in the luxury and lifestyle space - leading to lower margins and profits and in many cases, outright loss of business.

While the worst affected in this sector will be MSMEs, listed companies - Titan, Kalyan Jewellers, Rajesh Exports, and Vaibhav Global - will also be impacted to a limited extent. These companies have been expanding their pressence in the US. Their expansion plans could take a hit.

#3 Auto Ancillaries

The US is a big export destination for India's auto sector. While India doesn't export cars or bikes directly, many Indian auto ancillary companies are an integral part of the US auto ecosystem.

As per media report, India's auto exports to the US were US$ 2.2 bn in FY24. This number is not huge by itself, but at a company level, exports to the US are significant in many cases.

Also margins in this business are low. Thus the 50% tariff is a big blow to these companies, many of which are MSMEs. However, even large firms will be impacted to an extent.

The Indian auto ancillary companies exporting to the US are Bharat Forge, Sona Comstar, Endurance Technologies, Samvardhana Motherson, and Gabriel India.

However, it must be said that the Indian auto sector as a whole is relatively less affected by the US tariffs than sectors like textiles and jewellery.

The ones that are impacted would have put in place plans to respond to the same. These companies have decent fundamentals, and thus, will be able to handle this challenge.

Other Sectors

As per media reports, exports of leather goods and sea food products (especially shrimp) from India are likely to take a big hit due to the 50% US tariff.

In the case of both these products, India exports about US$ 4-5 bn annually to the US.

In the leather products space, investors should keep a watch on stocks like Mirza International and Metro Brands.

In the sea food space, investors should keep a watch on stocks like Apex Frozen Foods and Water base.

Conclusion

While the stock market reacts to the short term impact of the tariffs, the long term impact will become clear over the next few days or weeks.

It's possible that the Indian government could take remedial actions to soften the impact on the companies operating in these industries.

This is why investors should not take any hasty decisions.

In these uncertain times, Indian investors must remain cautious and vigilant about the changing trade landscape and the risks associated with tariffs on Indian goods.

Whatever is the final outcome of the tariff war, investors should assess the impact on the stocks in your portfolio and on your watchlist, in a calm manner.

Only then decide whether you would like to buy, hold, or sell.

Always do your due diligence, and consider factors such as valuation, industry trends, corporate governance, and market risks before making investment decisions.

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...