 "Gaurav Dua")
The levy of reciprocal tariff is going to create global uncertainties and disturb the global trade, and it will have a fallout on the growth in the global economy and the equity markets across the world.
For India, the reciprocal tariff stands at 27 per cent, which is slightly higher than the market expectations. However, the silver lining is that most of our Asian peers have been levied with much higher reciprocal tariffs, be it China, Vietnam, Bangladesh, or South Korea, which are competing with India in terms of exports.
So, in that sense, there is some advantage for India. Besides, the pharmaceutical sector, which is an important exporting industry for us, has been exempted from the reciprocal tariffs, which is positive.
Our initial calculations, however, show us that these reciprocal tariffs could impact Indian exports by around $30 billion in a year, which would mean around 0.70-75 per cent of the growth in the gross domestic product (GDP). This is the kind of impact on a prima-facie basis.
That said, I expect the government to also take some action and do some negotiation with the US. Further, countries like India could also benefit from the depreciation of their currency, say in the information technology (IT) sector, which would mitigate some of the impact of these reciprocal tariffs.
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Nonetheless, we'll have to wait and watch as to how things pan out. Globally, some of the countries like China, Canada, and Brazil have already spoken about retaliatory action on the levy of reciprocal tariffs. However, I think India would like to negotiate rather than take a very head on approach.
As for stock markets, after a good bounce in March, following the five months of decline, these global events will lead to return of volatility in the market. We, however, believe the downside risks in largecaps is very limited. You could, probably, go closer to the lows that we touched in February-March. However, we see a much higher scope for smallcaps to test the lows of February-March and, may be, break it as well. So, to that extent, we see a much bigger risk in the broader markets compared to the largecaps.
(As told to Nikita Vashisht)
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Disclaimer: Gaurav Dua is Senior Vice President and Head of Capital Market Strategy at Mirae Asset Sharekhan
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