The announcement of a 25% tariff on Indian exports to the United States, effective August 1, 2025, has sent ripples through Indian markets. With the US being India’s largest trading partner, accounting for approximately $87 billion in exports, this move could significantly affect key sectors. While some industries face substantial challenges, others are likely to remain resilient. Below, we analyze the sectors with maximum and minimum impact from the US tariff hike, offering insights for investors and businesses navigating this new trade landscape.
Sectors Facing Maximum Impact
1. Gems and Jewellery: A Major Blow
India’s gems and jewellery sector, a cornerstone of its export economy, is highly exposed to the US market, which accounts for nearly 30% of its $12 billion in annual exports. The 25% tariff could inflate prices, reduce demand, and disrupt supply chains, threatening livelihoods and profit margins. Industry leaders warn of potential job losses and urge diversification into markets like the Middle East and Europe, bolstered by recent Free Trade Agreements (FTAs) with the UK, Australia, and the UAE.
2. Automobiles and Components: Margin Pressures
The Indian auto component industry, which derives 27% of its $21 billion export value from the US, faces significant headwinds. Companies like Tata Motors, Bharat Forge, and Sona BLW, with high US exposure, could see reduced demand and compressed margins due to higher costs. The tariff may exacerbate competition from Vietnamese and Mexican counterparts, potentially leading to supply chain challenges and layoffs.
3. Electronics: Smartphone Exports at Risk
India’s electronics sector, particularly smartphone exports like Apple iPhones, has surged, with $24.1 billion shipped to the US in FY25. The 25% tariff could raise costs for US consumers, dampening demand and affecting India’s manufacturing ambitions. While India remains competitive compared to China and Vietnam, which face higher tariffs, exporters are urged to diversify markets and deepen domestic production to mitigate risks.
4. Textiles and Apparel: Competitive Disadvantage
Textiles and apparel, contributing $9.6 billion to US exports, employ over 45 million people in India. The tariff hike could make Indian garments less competitive against lower-cost rivals like Bangladesh and Vietnam, leading to potential order cancellations and job losses. However, some analysts see opportunities if US tariffs on competitors remain high, offering India a relative advantage in low-cost categories.
5. Chemicals: Profitability Under Pressure
Chemical exporters, such as Aarti Industries and Deepak Nitrite, with 9–25% of revenue from the US, face profitability challenges due to the tariff. Higher costs could lead to reduced orders or price renegotiations, impacting margins. The sector’s exposure to the US market, combined with global competition, makes it vulnerable to short-term disruptions.
Sectors with Minimum Impact
1. IT Services: Resilient Service-Based Model
India’s IT services sector, a global leader, is largely insulated from the 25% tariff as it primarily involves service exports rather than physical goods. While rising input costs in the US could curb discretionary tech spending, companies like TCS and Infosys are expected to remain stable due to their diversified client base and strong domestic demand.
2. FMCG: Domestic Demand as a Buffer
Fast-moving consumer goods (FMCG) companies, such as Hindustan Unilever and LT Foods, are minimally affected by the tariff. With a strong domestic market and limited US export exposure, FMCG stocks are likely to remain resilient. Premium export categories like basmati rice may face moderate disruption, but overall impact is negligible.
3. Telecom: Domestic Focus Shields Sector
India’s telecom sector, driven by domestic consumption and infrastructure development, is largely unaffected by the US tariff. Companies like Bharti Airtel and Reliance Jio face minimal exposure to US markets, ensuring stability amidst trade tensions.
4. Real Estate: Insulated from Trade Shocks
The real estate sector, fueled by domestic demand and urbanization, is insulated from the tariff’s impact. While high-beta sectors may see short-term volatility due to investor caution, real estate’s fundamentals remain strong, supported by government initiatives and rising housing demand.
5. Banks: Limited Direct Exposure
Indian banks, including HDFC Bank and ICICI Bank, are minimally impacted by the tariff due to their domestic focus. However, a potential slowdown in export-driven sectors could indirectly affect credit demand. The Reserve Bank of India’s (RBI) proactive measures, such as possible rate cuts, may further cushion the sector.
6. Power: Domestic Resilience
The power sector, driven by India’s energy transition and domestic infrastructure investments, faces negligible impact from the US tariff. Companies like NTPC and Adani Power are well-positioned to benefit from government policies promoting renewable energy, shielding them from trade disruptions.
Economic and Market Implications
Economists estimate the tariffs could reduce India’s GDP growth by 0.2–0.5% in FY26 if sustained, with a potential $21.75 billion loss in trade revenue. The rupee may face depreciation pressure, and export-focused stocks could underperform until trade negotiations progress. However, India’s domestic demand-driven economy and strategic FTAs provide resilience. Ongoing India-US trade talks, scheduled for late August, offer hope for a mutually beneficial agreement.
Investment Strategy
Investors should focus on:
Defensive Sectors: IT services, FMCG, telecom, real estate, banks, and power offer stability during volatility.
Diversification Opportunities: Monitor companies in affected sectors that are pivoting to alternative markets like the Middle East or Europe.
Trade Deal Developments: Positive outcomes from India-US negotiations could trigger a relief rally in export-heavy stocks.
Conclusion
The US 25% tariff poses challenges for India’s export-driven sectors like gems and jewellery, automobiles, electronics, textiles, and chemicals, but sectors like IT services, FMCG, telecom, real estate, banks, and power remain resilient. By diversifying markets and leveraging FTAs, Indian businesses can mitigate risks. Investors should stay vigilant, focusing on defensive sectors while tracking trade deal progress for potential opportunities in 2025.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always consult a qualified financial advisor before making investment decisions.
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