The recent decision by the Trump administration to impose a blanket 26% tariff on imports from India has sent ripples across various industries.

Reacting to the overnight news development, the Indian market witnessed a kneejerk reaction in the opening trade. The BSE Sensex fell more than 500 points while the Nifty50 slipped below 23,200 in the first 15 minutes of trade.

The levy is higher than the 20% imposed on the European Union, 24% on Japan, and 25% on South Korea.

While China remains the hardest hit with a 54% tariff, India’s sudden inclusion in the steep tariff bracket is seen as a significant setback for its trade relations with the US.

Key Sectors Affected by the Tariffs:

1. Pharmaceuticals: Exempt for Now, But Uncertainty Looms

The pharmaceutical sector, which contributes around $12.2 billion to India’s exports to the US, has been spared from immediate tariffs. This is a relief for major Indian pharmaceutical companies, as the US remains a crucial market. However, analysts remain cautious about the possibility of future tariff revisions.

Brokerage Views:

Bernstein: “The brokerage has upgraded the healthcare sector to equal-weight, given its limited exposure to the adverse effects of these tariffs”

CLSA: “Pharma remains exempt, and stocks are expected to recover as they had already priced in a 10% tariff.”

Jefferies: “Minimal impact on Indian pharma for now, but future tariffs cannot be ruled out. US-focused generic pharma stocks could see a rally.”

Citi: “We consider the exemption a positive, though uncertainty remains about its duration.”

Companies with High US Revenue Exposure (FY25E) (Source: Jefferies):

Syngene – 68%

Gland Pharma – 54%

Biocon – 50%

Zydus Life – 45%

Dr. Reddy’s – 43%

Piramal Pharma – 41%

Lupin – 35%

Sun Pharma – 30%

Cipla – 28%

Alkem – 20%

Laurus Labs – 17%

2. Automobile Industry: Facing Headwinds

The automobile industry, which accounts for approximately 3% of India’s total exports to the US, is expected to take a hit. “A 26% blanket tariff will likely impact demand and competitiveness of Indian automobile exports in the American market. This could lead to increased production costs, potential layoffs, and supply chain disruptions,” Macquarie noted.

3. Manufacturing and General Exports: A Significant Challenge

Beyond pharma and automobiles, India’s broader manufacturing sector is set to struggle under the burden of a 26% tariff. “The increased costs could dent export competitiveness and slow growth, potentially impacting GDP by 50 basis points,” according to Macquarie.

4. IT and Services: Relatively Unaffected

The tariffs are focused on physical goods, meaning that India’s IT and services sector remains largely untouched. However, it could impact discretionary consumption, suggest experts.

Rupee weakened against the dollar in the opening trade, trading near 85.69 amid market volatility.

Bernstein highlights that the biggest impact will likely stem from a decline in US discretionary spending, which could affect Indian IT firms that rely heavily on the American market.

Due to these risks, Bernstein has downgraded the IT sector to an equal-weight rating, citing rising recession risks in the US.

Strategic Implications and Next Steps

India is currently negotiating a bilateral trade agreement with the US to mitigate the impact of these tariffs. If successful, this could help ease trade tensions and restore competitiveness.

In the short term, businesses are likely to explore strategies such as passing on costs, diversifying markets, or absorbing losses to maintain their foothold in the US market.