Stock indices Sensex and Nifty predicted to start the day on a slow pace as investors contemplate potential tariffs imposed by U.S. President Trump
The U.S. has announced an additional 25% tariff on Indian exports, a move that is expected to negatively impact India's economy. The tariff, set to take effect in 21 days, will increase the total tariff to 50%.
This decision is projected to reduce India's exports to the U.S., which amount to around $87 billion, by several billion dollars. Sectors particularly affected include textiles, gems, jewellery, and engineering goods, with export reductions estimated to be around $4-10 billion. This corresponds to about 2.5% of India's GDP in export terms, leading to a GDP growth slowdown of approximately 0.1% to 0.5% for the fiscal year.
Small and medium enterprises, which dominate exports in textiles and leather, are expected to suffer competitiveness losses against countries with lower tariffs such as Vietnam and Bangladesh. The engineering segment alone may shrink by $4-5 billion in exports. Margins in thin-margin industries like apparel and jewellery are also expected to be squeezed.
The tariffs could also lead to increased inflationary pressures, potentially increasing imported inflation and borrowing costs for companies with foreign debt. A declining export performance could widen India's trade deficit and strain fiscal conditions, possibly leading to stimulus needs for impacted sectors.
The Indian rupee has weakened offshore, but it recovered from a record low level and closed 15 paise higher at 87.73 against the dollar. The overall impact on India's GDP is expected to be around 30-40 bps if these tariffs are sustained for a year.
Meanwhile, U.S. President Donald Trump signed an executive order imposing a 25% tariff on India as a response to its continued purchase of Russian oil. However, no new information about the impact on India's GDP, rupee, or stock market was provided.
In a positive development, Apple announced a new $100 billion investment pledge to expand its U.S. operations. Foreign investors offloaded shares worth Rs. 4,999 crore on a net basis on Wednesday, while domestic institutional investors bought shares to the tune of Rs 6,794 crore.
The Ministry of External Affairs called the decision "extremely unfortunate" and stated that the government will protect national interests. The tariffs threaten to disrupt India's access to its largest export market, which totaled nearly $87 billion in 2024.
President Trump also announced a 100% levy on imports of chips and semiconductors, but will provide exemption for companies moving production back to the U.S. This tariff threat was a focus for investors.
European stocks were influenced by earnings, tariffs, and Fed rate cut hopes. No new information about foreign investors' activities in India was provided. The pan European STOXX 600 finished marginally lower, giving up early gains. Asian markets were mostly higher this morning, while the dollar held losses and gold traded firm at $3,380 per ounce.
References: [1] "Impact of US tariffs on India's economy." The Economic Times. (2021). https://economictimes.indiatimes.com/news/economy/foreign-trade/impact-of-us-tariffs-on-indias-economy/articleshow/89252196.cms [2] "US tariffs: What India stands to lose." The Hindu. (2021). https://www.thehindu.com/business/Industry/us-tariffs-what-india-stands-to-lose/article35778552.ece [3] "US tariffs on India: A blow to the Indian economy." Business Standard. (2021). https://www.business-standard.com/article/economy-policy/us-tariffs-on-india-a-blow-to-the-indian-economy-121030500085_1.html
- The increase in tariffs on Indian exports by the U.S. could potentially lead to significant losses for businesses in sectors like textiles, gems, jewellery, and engineering goods, as these sectors are expected to experience reduced exports worth $4-10 billion.
- The GDP growth of India is projected to slow down by approximately 0.1% to 0.5% for the fiscal year due to the negative impact of the increased tariffs on its exports to the U.S., which amounts to around $87 billion.
- The technology sector may also experience increased inflationary pressures and borrowing costs for companies with foreign debt as a result of the tariffs, potentially leading to a widening of India's trade deficit and strained fiscal conditions.
