Tariff Shock To Impact Indian Markets? Emkay's Manish Sonthalia Sees A Silver Lining

Indian markets are unlikely to witness any steep decline or downturns even as fresh US tariffs stir global markets, according to Manish Sonthalia, Director and Chief Investment Officer at Emkay Investment Managers.

Sonthalia argues that the Indian currency has entered the undervalued territory and that any impact of the Trump tariffs has already been priced in, to an extent. “Some could say Indian currency is undervalued at these levels. The negative implication of all exports, embargoes and tariffs is broadly priced in,” he said.

“If currency is undervalued, there won’t be much impact on earnings. Couple that with rate cuts that are likely to happen. I think there could be a case for buy. No case of sell, per se. Market might take time to digest the current situation, but an absolute downfall in markets from current levels seems unwarranted," he added.

The bigger concern, though, lies in the pharmaceutical sector, Sonthalia noted, after US President Donald Trump announced sweeping tariffs on the sector. From Oct. 1, onwards, the US. will impose duties of up to 100% on imports of branded and patented pharma products unless manufacturers build production facilities in the country.

“All four tariff announcements today somewhat impact the Indian industry, with pharma being the largest impacted,” Sonthalia said. “If the entire value chain is to be taxed, then there is a wider impact. On the other hand, if only final branded formulations are tariffed, then there is a limited impact. There needs to be some clarification on that front."

He estimated that there could be an impact of around $10 billion, with companies like Sun Pharma at risk. “Large pharma companies like Sun Pharma have some 15-16% revenue that is likely to get impacted. But that’s about the headline implication. We need clarity whether the API value chain is going to get tariffed or only the final components.”

Nevertheless, Sonthalia urged investors to brace for sharp cuts, potentially up to a 50% collapse of revenues that are exposed to these tariffs. “One should build in a 50% collapse of revenues, for the portion of the actual revenue impacted by the tariffs,” he concluded.