How Trump's 25% tariffs will affect Indian auto sector
What's the story
US President Donald Trump has announced a 25% tariff on Indian exports to the US starting tomorrow. The move has raised concerns among Indian auto companies with exposure to the US market. According to Nuvama Institutional Equities, component makers have said that commercial vehicle (CV) and other component tariffs have increased from 10% in Q1 to 25%.
Tariff impact
PV component tariffs already at 25%
The passenger vehicle (PV) component tariffs were already at 25% during Q1. The companies most affected by the tariff hike include Bharat Forge, which draws over 20% of its revenue from the US market. Of this, around 55-60% comes from CVs, 5-10% from PVs, and the rest from non-auto segments. Ramkrishna Forgings and Balkrishna Industries are other firms that could be impacted by this development.
Market reaction
Tariff hike could impact GDP forecasts, trade balances
Analysts expect targeted volatility in key export-oriented sectors, especially those with significant exposure to the US. Vipul Bhowar of Waterfield Advisors said the new tariff regime might impact GDP forecasts, equity flows, and trade balances. He warned that maintaining such a high tariff could put India at a disadvantage in comparison to countries like Vietnam and the Philippines.
Sectoral impact
IT sector facing macroeconomic drag from US slowdown
While India's IT services sector may not be directly affected by the tariffs, it is already facing macroeconomic drag from a US slowdown. Nitin Bhatt of EY India warned that rising input costs could lead US companies to cut back on discretionary tech spending. Large-cap IT exporters with heavy exposure to US retail and manufacturing clients are expected to feel more pressure than those serving a diversified client base.