Export-oriented companies with significant exposure to the U.S. market are likely to face pressure on D-Street as the Trump administration’s additional 25% tariff on certain Indian goods came into effect on Wednesday. This move brings the total tariff rate on these items to 50%.
The announcement triggered a sharp sell-off on Tuesday and is expected to sustain bearish momentum in the short term. On Wednesday, the market was closed for trading due to Ganesh Chaturthi.
Santosh Meena, Head of Research at Swastika Investmart stated that the tariffs are a direct challenge to India's export-oriented sectors, particularly those that are labor-intensive and have a high dependency on the US market.
According to him, the sectors expected to be hit hardest in the near term include textiles and apparel, gems and jewellery, seafood and auto components.
Textile sector is particularly vulnerable, with duties as high as 63.9% on some products, which could lead to a significant reduction in export volumes. Gems and Jewellery sector faces duties exceeding 50%, posing a substantial risk to exports.
The effect of the additional tariff was felt by textile stocks on Tuesday. Shares of Welspun Living, which derives 60-65% of its revenue from the US market, fell another 2% on Tuesday.
Similarly, shares of Vardhman Textiles, Arvind Ltd, Alok Industries, Gokaldas Exports crashed between 2% and 4% on Tuesday. Jewellray stocks too underperformed which shares of Titan, Kalyan Jewellers, Rajesh Exports and Goldiam International plunging sharply on Tuesday.
SBI Research in a note stated that there will be 50% tariffs on $45 billion worth of major Indian exports and sectors such as textiles, and gems and jewellery are expected to face moderate pressures. However, pharmaceuticals, smartphones and steel are relatively insulated due to exemptions, existing tariff structures and strong domestic consumption.
VK Vijayakumar, Chief Investment Strategist, Geojit Investments said that even though a 50% tariff is unlikely to significantly impact India’s growth, there will be an adverse impact on India’s exports and loss of jobs in labour-intensive sectors like textiles, gems and jewellery and leather.
"The sentimental impact of this development will be negative from the market perspective. FII selling, too, can impact the market. Domestic consumption segments like financials, telecom, aviation, hotels, cement and segments of capital goods are better placed to withstand the adverse headwinds,” stated Vijayakumar.
Meena of Swastika stated that the technical structure of the Nifty has weakened considerably after it slipped below key support levels.
“This indicates a high probability of further downside. The index is likely to remain under selling pressure and could retest its 200-Day Moving Average (200-DMA) around the 24,050 level in the near term. For the trend to reverse, the Nifty must decisively regain and sustain the 25,000 level,” he said.
Prashanth Tapse, Sr VP Research Analyst at Mehta Equities believe that investors will likely choose to buy the dip as most of the tariff after effects have already been discounted in prices.
"From the current levels, the downside appears sentimentally limited, though volatility is expected to persist in line with Trump’s updates… investors should focus more on sectors that are relatively insulated such as FMCG, telecom, banking, and insurance,” said Tapse.