Softened Tariffs Boost Earnings Outlook, Durability to Be Tested: Anil Rego

US Tariff Policy Shifts: Impact on India and Global Markets

Trade Landscape Shifts

The US Supreme Court's decision to invalidate earlier IEEPA-based tariffs has significantly altered the trade landscape. In response, the administration has imposed a fresh 10% tariff under Section 122 of the Trade Act of 1974, effective February 24, for a period of up to 150 days. This provision permits temporary duties of up to 15% to address serious balance-of-payments concerns.

Impact on India

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The reduction in tariff intensity is directionally positive for Indian export sentiment and earnings visibility. India's effective tariff exposure has been reduced to 10% from the earlier 18% level. Exemptions remain in place for sectors under separate investigations, including pharmaceuticals, and for goods covered by the US-Mexico-Canada Agreement.

Sectoral Performance

Textiles and gems & jewellery stand out as the most direct and near-term gainers from the easing of tariffs. The steep reduction in duties from earlier levels of around 50% to 10%, along with zero-duty access for specific categories such as silk and diamonds, meaningfully enhances cost competitiveness in the sizeable US market.

Market Sentiment

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Markets will closely track the durability of the framework and the trajectory of bilateral trade discussions before assigning a sustained re-rating to trade-exposed sectors. The reduction in tariff intensity is directionally positive, but uncertainty remains.

Other Market Developments

• Gold prices may experience a technical correction due to crowded positioning and potential shifts in US real yields or dollar strength.
• Market reactions to recent AI developments appear overextended, but the long-term transformative potential of AI remains intact.
• Indian IT may remain range-bound in the near term, but the risk-reward appears relatively better in select mid-cap IT names.