Daily Voice: Tariffs could spark policy reforms that bolster India’s long-term growth story, says Anirudh Garg of INVasset PMS

India can manage the macro impact of the newly imposed 50% tariffs, though the adjustment will not be painless. The duties fall disproportionately on labour-intensive categories such as textiles, gems, and seafood, where near-term export volumes are likely to face pressure. Early estimates suggest the drag on growth could be visible but not destabilizing, largely contained to merchandise exports and associated supply-chain effects in specific clusters.

Three buffers provide resilience. First, policy flexibility: the central bank has already front-loaded easing and retains room to cushion volatility, supported by ample foreign-exchange reserves. This reduces the risk of financial instability and limits imported inflation. Second, domestic liquidity: record mutual fund inflows and sustained SIP contributions ensure a stable domestic investor base, helping markets absorb shocks without relying excessively on external flows. Third, trade diversification: progress on bilateral agreements such as the India–UK FTA is expanding duty-free access, allowing exporters to reorient gradually toward new destinations.

Risks remain. Sectors directly in the line of tariffs will see margin compression, order deferrals, and working-capital strain. If the dispute lingers, earnings downgrades in select industries may follow, potentially weighing on employment in affected regions. However, India’s growth model today is anchored more on domestic demand, capex, and a strong services surplus—areas insulated from goods-related tariffs.

With measured currency flexibility, targeted policy relief for exposed clusters, and continued progress on new trade corridors, the broader economy is positioned to absorb the shock while preserving its medium-term trajectory.

Following the 50% tariff on Indian goods, are you hopeful that the government will introduce more reforms to boost growth and support the sectors affected by the tariff?

Trade disruptions often accelerate the urgency for reform, and this tariff episode is no different. The government has already signalled intent to provide targeted support to affected exporters, but the opportunity is much larger: to remove friction in logistics, improve access to credit, and drive deeper structural reforms that boost competitiveness.

Similar to earlier inflection points in India’s economic history, external shocks can serve as catalysts for domestic policy resets. Reforms in areas such as ease of doing business, sector-specific incentives, and labour regulation could help industries regain competitiveness in global markets. The political will to expand market access through fresh trade corridors is evident, and this will complement internal reforms. Rather than being viewed solely as a setback, the tariffs may ultimately prove to be a trigger for policy renewal that strengthens India’s long-term growth story.

Do you think the market downside from here is limited, and that a sharp bounce-back is likely?

Markets are adaptive systems. When a shock as large as a 50% tariff enters the equation, prices recalibrate quickly. What we are seeing now is less about panic and more about the system processing new information. Domestic liquidity flows, corporate earnings resilience, and policy buffers have already absorbed much of the initial pressure, which suggests the downside is naturally capped from here.

A sharp rebound, however, is not a binary event. Instead of a “V-shaped” recovery, think of it as a probabilistic curve — one where structural drivers like consumption, capex, and financial deepening steadily tilt the odds upward. The longer volatility persists, the more investors shift capital toward fundamentals, reinforcing stability. In this sense, the market appears to be entering a phase where the risk of significant downside is low, while the opportunity for gradual appreciation remains asymmetric in favour of patient, disciplined investors.

Do you expect consumer discretionary to outperform consumer staples going forward?

Consumer discretionary demand has softened in recent quarters, reflecting pressure on household budgets and delayed spending on non-essential goods. Yet the structural case for discretionary consumption is intact, driven by rising per-capita income, urbanization, and the expansion of credit availability.

Earnings growth forecasts for discretionary players remain stronger over the medium term compared to staples, where volume growth is steady but pricing power is limited. While consumer staples continue to provide defensive stability, the upside potential rests with discretionary categories as the economy normalizes, festive demand strengthens, and credit penetration widens. In short, the near-term path may remain uneven, but structurally, discretionary is positioned to outpace staples over the medium to long horizon.

Do you believe it’s still better to invest in and stay invested in domestic-focused sectors and stocks rather than export-oriented ones?

The distinction between domestic and export-oriented sectors has sharpened after the imposition of tariffs. Export-heavy segments, particularly those tied to low-margin goods, face near-term earnings pressure and uncertain visibility until trade negotiations evolve. This does not imply a structural impairment, but it does argue for caution in the allocation mix.

By contrast, domestic-facing sectors are underpinned by multiple, resilient growth levers. Public investment remains at historically high levels, urban consumption is benefitting from tax cuts and easing financial conditions, and credit growth has stayed broad-based. These drivers are largely insulated from tariff shocks and provide steadier earnings visibility.

From a portfolio-construction perspective, the prudent stance is to maintain overweight exposure to domestic demand themes while keeping a measured allocation to export-oriented businesses with pricing power and differentiated markets. This strikes a balance between near-term protection and optionality for medium-term re-rating once external uncertainties begin to settle.

Do you think the IT sector is currently experiencing peak pessimism?

The IT sector is clearly in a period of subdued sentiment. Revenue visibility has weakened as global clients delay discretionary spending, extend decision cycles, and push for cost rationalisation. This has kept earnings growth muted and valuations under pressure, leading to consistent underperformance against the broader market.

However, much of this caution is now already reflected in the numbers. Consensus downgrades have largely come through, deal pipelines remain intact, and operating margins have stabilised after earlier compression. While valuations have corrected, they are not at distressed levels, which indicates that investors remain cautious but not capitulating.

It is therefore reasonable to say the sector is closer to the bottom of its sentiment cycle, but whether this is the absolute “peak pessimism” is harder to judge. For now, IT remains in a consolidation phase where expectations are low, performance is steady rather than spectacular, and investor positioning will likely stay selective.

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