Analysts favour India stocks in Asia post-tariffs despite near term worries

Even as Indian benchmarks are poised for a rocky start to Thursday's trade, analysts are favouring Indian stocks over their Asian peers after US President Donald Trump unveiled "kind reciprocal" tariffs on New Delhi. 

 

Overnight, the Trump administration imposed a 26 per cent tariff on imports from India, surpassing the 20 per cent levy on the European Union, the 24 per cent on Japan, and the 25 per cent on South Korea. Describing India’s tariffs as “very, very tough,” Trump stated that the 26% tariff was half of what India imposes on US products. Meanwhile, China faced even steeper penalties, with tariffs of at least 54% on many goods.

 

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Overall, Donald Trump announced universal tariffs of at least 10 per cent on practically all imports, with higher rates on countries that have the highest trade deficits with the US. Trump's 25 per cent tariff on foreign automakers will also pressure India to lower the high tariff rates.  

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Strategists at Morgan Stanley, Global X ETFs and The Global CIO Office have featured as a favoured bet, according to Bloomberg, as the US reciprocal tariffs on India is lower than what's set for China and Vietnam. 

 

Investors should position for domestic-oriented markets and defensive sectors as US reciprocal tariffs will see significant tariff increases for Asia, Bloomberg said quoting Morgan Stanley. “We highlight caution on Taiwan, South Korea and Japanese exporters, with a preference for India, Singapore and domestic-facing/defensives in Japan”

 

The initial reaction would be to reduce China holdings in favour of India where the tariff changes are much more modest, according to The Global CIO Office. "It’s a bad outcome for China that must inevitably lead to some reversal of recent gains. The market’s only hope is that the Chinese leadership negotiates with Trump and/or introduces further measures to stimulate the domestic economy.” 

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The exodus of foreign portfolio investors from India, who were reportedly shifting to China amid its economic revival, could reverse due to the increased tariffs on China. Since October last year, ₹2.23 trillion worth of stocks saw an outflow by global funds. 

 

Strategists at Global X ETFs said that this announcement removes a major source of uncertainty. While near-term pressure is likely, it may set the stage for selective re-risking later, especially in markets like Australia and India that are less exposed to the worst of these tariffs, they said. 

 

India has imposed some of the highest tariffs, with the weighted average tariff rate on US imports at 9.5 per cent, compared to the 3 per cent tariff rate imposed by the US. India's trade surplus with the US remains modest compared to other Asian peers. The US accounts for 18 per cent of India's goods exports, while India represents a small portion of US imports, with a 2.7 per cent share as of 2024.   

 

Indian benchmark indices are poised for a volatile session on Thursday. GIFT Nifty indicated a lower start for domestic stocks, although it pared some losses after falling over 1.5 per cent. At 7:23 AM, the early indicator of the Nifty 50 Index’s performance in India was up 157 points or 0.67 per cent at 23,174.5.