Vikas Khemani: Keep in mind, these are not the final tariff numbers. The negotiations around tariffs can go on for a long time. Even in the last quarter, we saw uncertainty, and there was a drop in volumes for companies focused on exports to the U.S. This is expected whenever there’s policy uncertainty, and I believe we’ll likely face at least another quarter of such ambiguity.
I’m not saying U.S. exports will collapse, but this uncertainty can impact earnings for a quarter or two for companies exporting to the U.S. The final impact will depend on how the negotiations evolve. That said, given the current context where many countries are being levied around 25%, it’s not drastically negative — everyone is being treated similarly.
Of course, we would prefer more favorable terms, but these are complex, long-term negotiations. I’m sure the government is actively and thoughtfully working on it, keeping all interests in mind. So, yes, there may be some temporary pain — a quarter or two of uncertainty for sectors exposed to the U.S. — but beyond that, I don’t see a structural risk.
Exports to the U.S. account for about $80–90 billion, which contributes relatively little to overall corporate earnings. So, at a market-structure level, I don’t see a major risk. Specific companies or segments might feel the impact, but even that could be temporary, depending on the final outcome.
But purely from an equity market perspective, would you say the cat is now out of the bag? We’ve lived with uncertainty for months, but now that the markets know the worst-case scenario — a 25% tariff — they might digest it quickly?
Vikas Khemani: Absolutely. That’s a fair point. In my view, the markets weren’t expecting anything worse than this. So now we know the worst-case scenario and its likely impact — and we can assess it and move on.As I said earlier, at a structural level — at the Nifty or overall market level — the impact on earnings due to this may not be significant. Of course, some companies that were counting on strong growth from that market could be affected in the short term. But even that, I believe, won’t be structural.
The “China Plus One” diversification strategy is here to stay for the long term. More importantly, India remains a strong domestic consumption story — far bigger and better than the export story — and that continues to be solid. Our infrastructure build-out is also progressing well, and import substitution remains a strong theme.
I’m not saying we shouldn’t pursue a favorable trade deal, but I’m confident the government is acutely aware of what to negotiate and what to protect — just like they handled the UK FTA. I expect this too will be resolved in a few months or quarters, depending on progress. Most countries are in the same boat. So, I wouldn’t view this as a structural negative at all.
The only thing is, there will likely be some short-term impact — especially for garment manufacturers, exporters, and some chemical companies, who also face challenges due to China. Do you think this could push the central bank to act more aggressively, even after the 50-bps bazooka it unleashed last time?
Vikas Khemani: In my opinion, these two issues are entirely unlinked. The RBI has done a great job by frontloading a 100-basis-point rate cut, and I don’t think more is required at this point.
Two things to consider: First, the entire tariff burden doesn’t necessarily fall on companies. Some portion might be absorbed in the short term, but eventually, it will be passed on to U.S. consumers.
Second, exporters do get a bit of relief from a depreciating rupee. We saw the rupee weaken a bit yesterday, which helps offset some of the impact. So, assuming this is a massive, widespread negative would be incorrect. There may be marginal pressure on companies exposed to the U.S., but I’m confident the government will roll out a measured tariff response and provide targeted incentives for affected sectors. That said, it won’t happen overnight — it’ll take time, as it should.
