Trump's tariffs are highly focused on scrutinising China in the global market while India continues to enjoy a competitive edge over other emerging markets, believes Pankaj Tibrewal, Founder and CIO at IKIGAI Asset Manager. In an interaction with CNBC-TV18, he mentions that he is betting on India's fundamentals such as domestic market resilience and that the tariff levies also contributing to positioning it better compared to emerging market peers.
The United States said on Tuesday that 104 percent duties on imports from China will take effect shortly after midnight, even as the Trump administration moved to quickly start talks with other trading partners targeted by President Donald Trump's sweeping tariff plan.
Despite not being a direct target of the primary tariff volleys, India is not immune to the repercussions of a US-China trade war. A protracted and escalating trade war between the two biggest economies can lead to a broader global economic slowdown.
The tariffs placed on the pharma sector specifically point towards profits concentrated in Ireland and the Cayman Islands, and as per Tibrewal the intent is to bring these profits “back to the US”.
“Even if you think about manufacturing going back to the US, the Indian generic companies don't have a balance sheet and more than $8-10 billion to spend on capex in the US. Hence it won’t make any difference and won't move the needle”, he added.
Tariffs may also prove counterproductive to the healthcare sector in the US, as 90 percent of pharma volumes in the US are generics, of which 60 percent are from India. Indian generic pharma margins run thin and therefore may not be able to sufficiently absorb prescribed tariffs, US healthcare will suffer, owing to softening supply.
As per him, “Once the dust settles down, India's pharmaceutical industry will be in a better spot. Especially to contract development and manufacturing (CDMO) players, a lot of work that has flown to China in the last decade or two can come back to Indian players ”.
Tibrewal stated that since US exports comprise only about 2 percent of Indian exports, financially India will not be hit too hard. However, he did say that the 26 percent tariff, although may sound steep, competitors such as Bangladesh and Vietnam have it worse, offering India a “competitive edge”.
He added that the exemption of IT and pharma proves to be a silver lining, however he cautioned against cuts in discretionary spending towards IT due to uncertainty, and thus expects lowered growth. That being said, he posits that IT firms may defer giving guidance citing unpredictability, “Once we see a 5-6 percent free cash yield on IT, that's the time when the downside will be limited’.
“Domestic facing sectors such as banking, NBFCs, consumptions, capital goods, will do better in this uncertain global environment. In many places valuations have corrected meaningfully, there's nervousness across the street and the consensus is that this year is going to be a very tough year”, he said.
Indian companies may also stand to gain in the future at the expense of competing market nations. In this context he added, “The next 18-24 months will be a classic bottom-up stock pickers market.” he said. Indian chemical companies could also gain market share in chemicals from China.
As of 11:45 a.m., Nifty Pharma stands at Rs 20,070, Nifty Metals at Rs 7,840 and Nifty IT at Rs 32,414.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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