Goldman Sachs, Bernstein, Nomura: Brokerages decode Trump India tariffs

Export-oriented stocks, analysts said, can underperform in the near-term. Investor sentiment till trade talks turn positive from here is expected to remain cautious, they suggest

Donald Trump’s 25 per cent tariff on Indian goods triggered a sharp fall in the markets in with the S&P BSE Sensex slipping nearly 800-points in intraday deals before recovering partially.

 

While brokerages see this as a knee-jerk reaction to the developments, they are hopeful that the final tariff will be lower – in the 15 – 20 per cent range as both countries are still trying to eke out a feasible solution.

 

Meanwhile, here’s how leading brokerages have interpreted the developments:

 

Goldman Sachs

 

While the surprise 25 per cent tariff announcement will likely impact earnings, if enforced, we think the incremental earnings drag would be relatively moderate. Only 2 per cent of MSCI India total revenues are derived from goods exporting sectors. As such, the direct tariff impact is relatively small, based on our baseline pass-through assumptions. 

 

 

Every 5 percentage point (pp) increase in US tariff rates could cause an 80 basis point (bp) incremental hit to MSCI India earnings per share (EPS) from direct and indirect channels. As such, we estimate about 2 per cent incremental hit to EPS if the new tariffs are enforced. While we are not making any changes to our EPS growth forecasts (currently at 12 per cent/14 per cent for CY25/26). 

 

Indian equities have significantly lagged broader emerging market (EM) equities year-to-date (by about 15pp); the underperformance is likely to extend in the near-term.

 

Nomura

 

The announced higher reciprocal tariff rate of 25 per cent, however, may be temporary, and might settle down lower. The US trade delegation is set to visit India at end-August as part of this process. Hence, the elevated tariffs announced by the US are unlikely to be permanent, in our view, although the best-case outcome would be tariffs in the 15-20 per cent range. Over the medium-term, we would still expect India to remain a beneficiary of the China plus one strategy. 

 

Higher tariffs from the US could add downside risks to the RBI’s FY26 GDP growth forecast of 6.5 per cent. Already, high frequency data point to a sluggish Q2 , with subdued urban consumption, weak private capex and moderating credit growth. Higher tariffs and pressure to curb Russian energy will further drag down growth due to weaker net exports.

 

We maintain that the Reserve Bank of India's (RBI’s) rate cutting cycle is not over, despite the change in its stance to neutral. We expect 25bp cuts each in October and December to a terminal repo rate of 5.00 per cent by end-2025, with risks skewed towards further cuts. 

Indian exports to the US; Source: Bernstein report

 

Bernstein

 

The best news, for now, is the fact that services remains outside this ambit, a place where serious macro dents can happen. UK, EU and Japan have forged a trade deal. Indonesia enjoys 19 per cent, Japan 15 per cent while Vietnam is at 20 per cent. India is no longer attractively placed in the pecking order. The worse could well be coming, as if China somehow settles at 34 per cent, which was the original plan, this would get the India-China differential really low, simply not high enough for India to have a meaningful China+1 impact.

 

Angel One

 

Export-oriented stocks can underperform in the near-term. Investor sentiment till trade talks turn positive from here is expected to remain cautious. FPIs may adopt a wait-and-watch stance till further clarity comes in or their stance may lead towards a sector rotation approach. Investors (domestic & foreign) are expected to shift their focus towards domestic growth, consumption, infrastructure and financial companies that rely less on exports.

 

PL Capital

 

Tariff announcement is much beyond trade and has far bigger geopolitical implications on the ongoing bilateral relations between India and US since Operation Sindoor. The roots of this aggression lie in Indian denial of US role in ceasefire with Pakistan; sustained buying of Russian crude; continuous status of Russia as a key defence supplier; and growing strategic overtures of BRICS and attempts at forging a RIC (Russia, India, China) block which might disturb US geopolitical interests in SE Asia. 

 

Probability of shifting of defence procurement away from USA post Operation Sindoor, might have led to sudden imposition of tariffs and penalty. We believe this attempt by US is a bullying tactic, which has also been used against some other countries, including Canada.

 

We expect increase in uncertainty and market volatility in the near-term. Companies that have higher US exports might see increased volatility. Domestic consumption, hospitals, select consumer, Infra, capital Goods, AMC and private banks will act as a defensive hedge during these volatile times.

 

Barclays

 

We do not see this 25 per cent tariff threat impacting GDP growth meaningfully, pegging the likely impact at around 30bp. We expect near-term pressure to be maintained. The rupee looks oversold in the short term. 

 

Clearly, USD-INR has bounced more than anticipated, but we think the February high of just under 88.0 remains a strong resistance level. The INR also remains cheap in both NEER and REER terms, which could mean more of an inclination from the RBI to intervene to cap weakness.