Brokerages see GDP taking a hit from Trump's brutal 26% tariffs on India

Donald Trump’s sweeping 26% tariff on Indian imports has rattled markets and raised concerns over India’s trade outlook, with brokerages warning of a potential hit to economic growth and export viability. The broad-based tariff, described by Macquarie as “worse than expected,” could render some Indian exports unviable, while UBS labeled it a “negative event” for the market, citing a direct threat to GDP.

While the across-the-board duties threaten to make some exports unviable, the exemption for pharmaceuticals—India’s largest export category to the US—provided a rare bright spot, triggering a rally in Indian drugmaker stocks on Thursday.

Pharma breathes easy— for now


The exclusion of pharmaceuticals, which account for nearly 14% of India’s exports to the U.S., from the tariff list offered relief to Indian drugmakers, but brokerages warned that the reprieve may not be permanent.

“Pharma-specific tariffs at a later date cannot be fully ruled out,” Jefferies said, though it currently sees minimal impact on Indian drugmakers. The brokerage noted that US-focused generic pharma stocks were likely to rally, with Syngene deriving 68% of its revenue from the US, Gland Pharma 54%, and Biocon 50%, making them among the biggest beneficiaries.

Citi said the exemption aligns with its view that the probability of US tariffs on Indian pharma was always low but added that it remains unclear whether this is a short-term or medium-term arrangement. CLSA echoed this view, noting that pharma stocks had already priced in a potential 10% tariff, making them “likely to bounce back.”

Wider economic fallout looms


Beyond pharmaceuticals, brokerages painted a grim picture for Indian exports, warning that the broad-based tariffs could disrupt trade flows. Macquarie highlighted that auto exports, which make up 3% of India’s total shipments to the US, will also be hit, adding that the 26% duty “could have a significant impact on India’s GDP.”

UBS said the scale of the tariffs was “higher than expected” and could render some exports unviable, calling it a negative development for the Indian market. The brokerage added that while pharma has been excluded for now, it remains under review, leaving the door open for future tariff adjustments.

Bernstein described Trump’s move as “a historic step toward a new world order” and predicted that it would set off months of back-channel negotiations. “Many of these rates may not last beyond H2 2025,” the brokerage said, suggesting that the current tariff structure might not be permanent.

India’s IT sector at risk, but China’s loss could be India’s gain


Bernstein noted that while India is facing higher tariffs, it could stand to benefit from China’s steeper 34% duty, which comes into effect on April 9. The brokerage suggested that some U.S. companies could pivot away from China toward India for sourcing, offering a potential long-term advantage.

However, the brokerage warned that the biggest risk comes from a decline in U.S. discretionary spending, which could hit India’s IT services sector. As a result, Bernstein downgraded Indian IT stocks to ‘equal-weight’ while upgrading healthcare to the same rating due to its limited tariff exposure.

Markets react to tariff shock


Indian stock markets reflected broader uncertainty, with the Sensex and Nifty50 opening lower on Thursday as investors digested the impact of Trump’s announcement. While most sectors declined, pharmaceuticals emerged as the day’s clear winner, with Dr. Reddy’s up 6% and Cipla and Sun Pharma gaining over 4%.

As India prepares for negotiations with the US, brokerages say the long-term trade impact remains uncertain. For now, pharma breathes easy—but the rest of India Inc. is bracing for a prolonged tariff battle.

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