At macro level things are manageable; real issue is on micro level: Buoyant Capital's Jigar Mistry on US tariffs

India, Mistry said, has been collateral damage in this standoff but remains relatively insulated compared to larger trading partners. “The main adversary is China, and Xi Jinping doesn’t operate on electoral cycles,” he explained.

When it comes to impact of tariffs on India, Buoyant Capital's Jigar Mistry believes that the macro level impact is manageable but real problems for India are in the micro level. He made these comments as a part of a conversation with Moneycontrol's N Mahalakshmi on The Wealth Formula Podcast. At a macro level, Mistry pointed out that India’s export exposure is too small to cause major disruption. “At the macro level, it’s not a very difficult problem to solve, right? Because India exports around 2% of GDP and if half of that is taken out for six months, you still have like a 50 basis point impact to contend with, which is one month worth of work,” he said. He noted that during COVID, India saw a longer impact. "So clearly we can handle that," he noted.

The challenge, he added, lies in the micro level because gems and jewellery and textiles could get impacted. And rupee dollar may be impacted if the current account deficit increases.

Understanding the tariff problem

When it first got announced around February or March, Mistry noted that the markets were evaluating this from almost two very distinct possibilities. One is what the market seems to be talking about now, which is that this is a job-owning tactic to get a lot of countries to a negotiating table. The other, is that there could be a deeper economic philosophy driving US actions. “Initially, it looked like there was some sort of thought behind this because Dr Stephen Miran, who was then the chair of the Council of Economic Advisors to the White House, and today is one of the Fed governors, had written a memo when he was in the private sector about six months before February,” he said.

Mistry explained that Miran was arguing something which was completely different from how the US has been known to do business. The central point of thought he had was that the dollar is extremely overvalued. The reason it is overvalued is because US must run very high trade and fiscal deficits.  Mistry added, “I think he said it’s like a structural debt on US, to keep supplying those dollars so that other countries could invest in dollar. The way in which you would go about doing this is to have everything offshored, run very large trade deficits, and get everything manufactured outside of US."

India, Mistry said, has been collateral damage in this standoff but remains relatively insulated compared to larger trading partners. “The main adversary is China, and Xi Jinping doesn’t operate on electoral cycles,” he explained.

He remains optimistic about a resolution. “There’s some amount of work to be done there, but we are with the street in believing that eventually, you will have a resolution to this and sooner looks like more probable than later.”

While broader market risks appear contained, Mistry cautioned that the rupee-dollar dynamics and capital flows could pose challenges if tariffs persist for a longer period. He pointed out that both FII and FDI flows have turned negative, which could add pressure on the current account balance and reserves. “Now, the FII outflow has been negative. The FDI on a net basis has been negative as well… your reserves get into a slightly tricky position and the sentiment around it weakens as well. So I think those are the elevatory levels of issues around the tariff,” he said.

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