Trump’s Tarff Rate rattles Indian Market.

The Indian government expects the economy to grow within 6.3% & 6.8% in 2025–26; U.S. President Donald Trump has imposed steeper-than-expected tariffs (25%) on Indian goods, with analysts warning of sustained pressure on the country’s growth. The 25% tariffs announced could shave off the South Asian nation’s growth in 2025-26 by up to 40 basis points, with the threat of additional penalties further clouding the outlook, economists said.

The rupee is within touching distance of the record low of 87.95 it hit in February. According to economists, it would be interesting to see if the currency is allowed to depreciate through that level to offset the impact of tariffs or if they fight to maintain currency stability. Rupee touching 90 becomes a big level to watch.

Analysts warned that a dent to New Delhi’s manufacturing ambitions could hamper growth in the world’s fifth-largest economy. “If these tariffs remain in place, they could undermine India’s growing appeal to businesses seeking trade diversion in low-value-added manufacturing sectors“, said Raphael Luescher, Co-Head of EM equities at Vontobel.

Goldman Sachs economist Santanu Sengupta estimated a 30-bps hit to growth once the tariffs are imposed, adding that “elevated policy uncertainty in the U.S. can cause Indian firms, particularly those exposed to U.S. tariffs, to postpone investment decisions“.

However, DBS Bank said downside risks are likely to be offset by fiscal support for labour-intensive industries and smaller exporting firms, alongside further rate cuts. “Despite limited tariff arbitrage, we are still of the view that the economy will continue to benefit from trade diversion flows as manufacturers diversify and derisk from other production bases, including China“.

Alison Shimada, head of Total Emerging Markets Equity at Allspring Global Investments, said the direct macroeconomic impact may be limited given India’s exports to the U.S. account for just 2–3% of GDP.

But she noted that “India wishes to maintain constructive trade relations with both Russia and the U.S.”, and could consider increasing imports from the U.S. to ease tensions. “The stock market may react negatively in the short term as the INR is depreciating on the back of this news. However, there is a level of skepticism in the markets until the final agreements are released. Therefore, fundamentals will remain a key focus since India earnings season is ongoing“.

While, referring to increasing imports from the United States, it would be mention worthy that while doing so the country would foresee a major shift in its stand of “Aatmanirbhar Bharat – Make In India” narratives.

Team Maverick