Donald Trump tariffs trigger sector churn with more losers than winners

Global markets reeled from the sweeping tariffs imposed by US President Donald Trump, but India's benchmark indices emerged relatively unscathed on Thursday, dipping by a modest 0.4 per cent. However, a closer examination of stock and sectoral performance reveals a more nuanced impact, with the tariffs creating a mix of winners and losers.

 

Pharmaceuticals

 

The Nifty Pharma index surged 2.25 per cent after the pharmaceutical sector was unexpectedly spared from reciprocal tariffs, at least for now. Companies with significant US exposure, such as Ipca Laboratories, Lupin, Natco Pharma, Sun Pharmaceutical, and Cipla, saw their shares rise between 3 per cent and 6 per cent. This exemption provided relief to India as pharmaceuticals are a crucial export to the US. However, uncertainty lingers as the Trump administration has hinted at potential future tariffs on the sector.

 

Textiles

 

India's textile sector is seen as a beneficiary of the higher tariffs imposed on major textile exporting hubs like Vietnam (46 per cent) and Bangladesh (37 per cent), with India's tariff at 26 per cent. This perceived advantage led traders to snap up stocks of companies like Vardhman Textiles, Trident, and Gokaldas Exports, resulting in the scrips gaining up to 18 per cent. However, analysts caution that the actual impact remains uncertain as these companies, with significant direct revenue exposure to the US (40-60 per cent), may still face negative consequences in the short term.

 

Information Technology (IT)

 

IT stocks were the worst hit, with the Nifty IT index tumbling close to 4 per cent. This even as software exporters are not directly impacted by the latest round of tariffs. However, the negative market reaction stems from concerns that the tariff wars could hurt global growth and force companies to scale back their IT spends. “There may be indirect impacts from slower gross domestic product (GDP) growth due to higher tariffs despite potentially lower rates in the future. Demand from manufacturing/logistics and retail verticals will get impacted due to higher tariffs while demand from verticals such as healthcare, hi-tech, utilities, and communications will be less impacted,” said a note by Jefferies.

 

Auto & auto ancillary

 

Stocks in the automobile and auto component space, another large exporting sector, experienced moderate declines despite the US having already imposed a 25 per cent tariff on March 26. Although many stocks in this sector had already corrected in recent weeks, companies with significant US revenue exposure, such as Sona BLW Precision Forgings and Tata Motors, faced another round of selling pressure.

 

Chemicals & aquaculture

 

Shares of companies in the chemicals, agriculture, and aquaculture space saw selloffs. Analysts say companies in this space face a double whammy as they will be hit by higher US tariffs and could face increased competition with pressure on India to reduce import duties and improve domestic market access.