US tariff threats are a concern but India will not see a significant impact, says Emkay

US tariff threats a concern but India will not see a significant impact, says Emkay

US President Donald Trump’s tariff threats may well be keeping Indian markets on tenterhooks but one needs to have a deeper look at the US-India trade agreement for identifying what cushions India against the plausible US-led reciprocal tariffs, says Emkay Institutional Equities CEO Nirav Sheth.

"First of all, a lot of what India exports to the US is not possible to be manufactured in the US itself. For example, the 4G network, where there are no competitors. Any import duty there will simply raise inflation," said Sheth while speaking at a webinar on the Indian market outlook.

While there is a lot of bluster around US raging a trade war, on the inside, they are still maintaining caution, believes Sheth. "Because President Trump, I don't think he wants a final outcome of his actions to be higher inflation. That is something that is a complete no-no for the US", he said while stressing on the point that US reciprocal tariffs is not a big threat to India.

"We also have to look at where listed companies are exposed... And the primary space where there's still a little bit of risk... is auto ancillaries, and maybe some capital goods", he added.

"We also have to consider whether India will (levy) import duty on some of the aforementioned segments to ward-off the reciprocal tariffs. A few auto ancillaries will surely see the larger impact to be muted across the listed space," he added.

On the macro-level, India is not dependent on exports to the US as a driver of growth. He believes that unlike a lot of ASEAN countries, the impact on India will be muted.

Meanwhile, Seshadri Sen, Head of Research and Strategist at Emkay Institutional Equities, highlighted that while quarterly numbers might show muted sequential growth (for the capital goods) due to the sector's lumpy and seasonal nature, valuations have corrected.

He remains bullish on the power sector within the capital goods. The reasons being, "it is not dependent on central government spending to the same extent as the other verticals, and we think we are in a 10-year positive power industry cycle.”

Further, Sheth and Sen also highlighted the fact that while corporate investments are picking up, real estate and government spending will remain significant drivers. They expect growth in the unlisted digital economy and sustained momentum across mutual fund flows and SIPs aligned to the structural uptrend of investor participation in equity markets.