Major global brokerages are cautious of India’s near-term growth outlook following US President Trump’s tariff on exports along with an unspecified penalty over buying Russian oil and defence equipment, but maintain that the domestic-driven economy and upcoming trade talks with America can ensure that the actual impact is not very large.
Goldman Sachs has estimated that the tariffs, if implemented, could shave off 0.3 percent from India’s GDP in 2025, which is not a massive hit considering the exports to US only account for 2.2 percent of India’s GDP. Goldman Sachs has not changed its growth forecast for India yet, but does warn of downside risks if things worsen.
In terms of earnings, the damage may be limited, as only 2 percent of MSCI India revenue comes from exports, and Goldman Sachs has estimated that these tariffs could lower earnings growth by around 2 percent, if fully enforced.
Nomura and Franklin Templeton have estimated a smaller 20-30 bps hit to India’s GDP, while CLSA said the bigger worry is the negative sentiment. At a time when India’s stock market is among the most expensive globally and facing earnings downgrades, geopolitical tensions could further ward off foreign investors.
Losing Edge in Tariff Competitiveness?
Analysts also pointed out that India’s effective tariff rate (ETR) has now risen above peers like Vietnam (21 percent), the Philippines (20 percent), and Indonesia (18 percent), shrinking its earlier cost advantage, especially in sectors like electronics and industrial machinery. This could lead to the US looking at diversifying imports to other Asian economies.
However, India still has an edge over countries like Bangladesh, Thailand, and Taiwan in areas such as apparel, electrical machinery, autos, and jewelry, giving it opportunities to gain market share in those sectors.
A key risk lies in pharma exports, which form about 14 percent of India’s shipment to the US, as any tariff here would be more meaningful as it represents around 0.3 percent of India’s economy.
China+1 Still in India's Favour?
Despite short-term worries, Nomura said India will continue to benefit from the global ‘China+one’ trend, where companies are look for alternatives to China. India is already seeing rising interest in electronics, textiles, toys, and EVs, with investments flowing in steadily. Nomura does not expect the US tariff to derail this long-term opportunity.
Tariffs can Accelerate RBI's Easing Cycle
With growth facing global headwind and inflation below expectation, the focus is shifting to monetary support. Analysts believe the RBI may respond with an interest rate cut as early as August to cushion the economy. Both Elara and Quanteco expect a 25-bps cut this month, while a larger 50 bps move being considered if growth risks worsen.
Nomura has highlighted that inflation is tracking well below the RBI’s comfort zone, projecting it to ease to 2.8 percent in FY26, compared to the central bank’s forecast of 3.7 percent. This gives room for further easing. Nomura expects the RBI to deliver two more 25 bps cuts in October and December, taking the repo rate down to 5 percent by end of 2025.
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