India may face growth, EPS risks as US slaps 25% tariffs: Goldman Sachs

Donald Trump's 25% tariff on Indian goods may slow growth, hurt exports and earnings; Indian stocks could stay weak as trade ties with the US face fresh tension, says Goldman Sachs report

US President Donald Trump has announced a 25 per cent ‘reciprocal’ tariff on Indian goods, effective from August 1, along with an ‘unspecified penalty’ for India’s energy and defence dealings with Russia. This could raise effective US tariffs on Indian imports, if implemented in full. 

India’s trade surplus with the United States has grown significantly over the past decade. It doubled from $20 billion in FY15 to $40 billion in FY25, driven by sectors such as electronics, pharmaceuticals, and textiles. In FY25, India exported goods worth $86.5 billion to the US while importing $45.7 billion, US investment bank Goldman Sachs said in a report. 

India’s bilateral goods trade surplus stands at over $40 billion in FY25

 

Possible direct impact of higher US tariffs

If the new tariffs are enforced, they could directly affect India’s GDP. According to Goldman Sachs estimates, there could be an annualised drag of about 0.3 percentage points on real GDP growth. This is based on India’s goods exports exposure to US final demand (around 4 per cent of GDP) and a tariff elasticity of -0.5 percentage point. 

The broader uncertainty surrounding US trade policy may also hurt domestic investment. Since January 2025, US trade policy uncertainty has increased sharply. This could lead Indian firms, especially those with US exposure, to delay capital expenditure. Previous estimates suggest such uncertainty could reduce India’s GDP growth by 0.3 percentage points.   

  

Moderate earnings impact likely

The earnings impact of the tariff move, though negative, is expected to be modest. Goods exports contribute just 2 per cent to MSCI India revenues. Analysts estimate an incremental 2 per cent hit to corporate earnings per share (EPS) if the tariffs are enforced, due to both direct impacts on exporters and indirect effects from slower growth, Goldman Sachs said. 

Indian equities have already underperformed their emerging market peers by 15 percentage points this year. Analysts expect this trend to continue in the near term, citing weak earnings in Q2 and valuation pressures. Export-heavy and investment-linked sectors may be more affected, while domestic sectors like financials and consumer stocks are likely to hold up better, the report mentioned.

 

Rates and currency outlook

The Reserve Bank of India (RBI) may consider another rate cut later this year due to growth risks and controlled inflation. The new tariffs could widen India’s current account deficit by 0.1 per cent of GDP in 2025. Although the rupee may face further depreciation, analysts believe this is part of a healthy market adjustment.