Daily Voice: India hits sweet spot with removal of reciprocal duty, 10% blanket tariff, says this cofounder

After the withdrawal of reciprocal duty and a blanket 10% on all countries (except China), India is in a sweet spot. Even otherwise, too, India is a predominantly domestic consumption-driven economy (70% of GDP) with forex reserves of over $600 billion. The bad impact on India will be low.

Reversal of reciprocal duty indicates the deep expected impact on the US economy, hence the reversal. So, it’s unlikely to repeat after 90 days.

Whereas reciprocal duty on China has only increased since first announced. China has also not shown any sign of weakness. So, this is escalating on a daily basis. However, for certain categories of electronics-related items, it has been relaxed. However, China’s aggressiveness continues with the latest actions against Boeing.

Even if at the end of the day everything settles between China and the US, the importers of US goods will never forget this event. It will hound them for many years, and they will be compelled to develop/ diversify alternate sources.

That puts India on the map.

Do you think the market has fully priced in the tariff factor and shifted its focus to earnings?

What Donald Trump did can’t be so easily forgotten.

Markets have corrected very sharply since Trump’s economic policies were out. One can always question the extent of the impact of those policies versus the impact on stock prices. As per the official statement, we only have 90 days. Given the unpredictability around Trump 2.0, the market is seeing an upward correction with fingers crossed.

We should be prepared for anything in 90 days. And the market is expected to be volatile until then. It will only get a direction post-certainty on either side.

With hopes that the tariff issue may be resolved through negotiations, do you believe the 6.5% growth target for the current fiscal year is achievable, given the falling interest rates and the government's push?

If India could ensure a BTA (Bilateral Trade Agreement) with the US before September this year (as guided by some media reports), India is in a very lucrative position. The US-China trade war is clearly escalating. China exports around $450 billion tangible goods to the US every year. This market opportunity is definitely on the table if India could get into an agreement with the US.

If the situation turns out this way, India can achieve 6.5% this year. Also, RBI decision to cut the repo rate will help. Lower oil prices also will play a role in this. But I am more curious as to whether 7% is possible next year.

Do you think the tariff risk will ease completely shortly, considering possible negotiations between the US and its trade partners?

India has some advantages in these negotiations emanating from its relations with Uthe S:
* Chemistry between Modi and Trump and active engagement with the US administration since the beginning of Trump's presidency.
* A measured approach that avoids confrontations, unlike China, creating diplomatic goodwill
* Practical options to reduce the trade deficit of the US without hurting the Indian economy, such as increasing US oil imports

From a geopolitical point of view -

What the US tried to do in the name of reciprocal duty was beyond anyone’s wildest guess. Also, the speed at which it was taken back, despite so much vocally advocating for it, signifies its serious implications for the US. So, my guess is, any action this steep won’t be repeated. Also, every country is looking for a trade deal with the US now. Many have sided to reduce/remove the duty on the US. Once there is enough for the face-saving for the US, the risk will be eliminated.

Do you believe the US is headed for a slowdown but not a recession?

Difficult to say. With reciprocal duty in place, it was clearly a possibility. However, I firmly believe that no one wants a recession. Trump is a business-minded person. Under his first tenure US did really well. I am hopeful that there is thought behind what is being done by them. From Trump’s point of view, he is just doing what he promised, just very fast.

Two major wars in 3 years, no recession. This time will also pass. I do not see a recession.

In the current market environment, which sectors would you prefer to increase exposure to?

Manufacturing and mining are good industries. In manufacturing, Defence is a scalable story for many years to come. Also, we like Infra, chemical and Pharma. China + 1 (2.0) is here. Make all your decisions in light of that.

Also, to keep an eye on India's commitment to achieving 500 GW of renewable capacity by 2030, which creates a substantial growth runway. However, dumping from China is a concern in light of Trump’s ‘drill baby drill’ slogan.

Have you started betting on the consumption space?

India's domestic consumption is strong. Investing in the consumption space is a safe strategy. However, we are looking for companies that were successfully competing with major exporters like China, even before the duty actions. These are the companies which already have relations with importers in the US and Europe and were able to manufacture in a cost-competitive way.

So now they are much better position post heavy duty on Chinese goods.

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