Talking Point This Week — Prequels And Sequels

Donald Trump surprised everyone (or maybe not) with advancing the tariff conversation even before April 2, by announcing a 25% tariff on all cars imported into the US. While we talk about it in detail below, the key is that the US President stays the top newsmaker for yet another week. Indian markets seem to be less and less fazed by these announcements though, after a strong March series and a good start to the first day for the April series. Speaking of the April series, the sequel to the new expiry date from NSE turned out to be a water pistol instead of a bazooka, because the NSE has had to defer its plan to change the expiry day to Monday until further notice. It led to BSE zooming in trade on Friday. The markets have been stable in light of all the newsflow around tariffs, but could next week be different? Sure it could. And here's why:

The US has rarely ever seen a two-month trade deficit even half as large. What is this being attributed to: industrial supplies. Imports of oil, liquified natural gas, gold, and steel have gone exponential as producers are bracing for what appears to be a very long trade war. But in the case of autos, this frontrunning, while possible for the next few days, seems improbable over the longer term. Even on some other themes, some of these tariffs seem difficult to follow on. Atlantic Container Line, an ocean carrier which handles large industrial items including the wings for Airbus planes, says it will be forced to abandon the US market if the government follows through on threats to fine Chinese-built shipping vessels.

Picture this – the US imported a whopping 7.4 million cars in 2024. And here's the kicker – not a single major car brand makes a 100% American-made car. That's why some folks think that if tariffs stick around for too long, car companies might start going belly up. And it gets even crazier as the US just reported a massive $301-billion trade deficit over two months, partly because companies are trying to dodge tariffs. A recent Bloomberg article says that the upcoming tariffs on car imports could drive up prices across the board, adding thousands of dollars to the sticker price. And it's not just the fancy cars that'll be affected – many of the cheapest models from brands like GM, Ford, Kia, and Hyundai are made outside the US, so they'll be hit hard too.

The long-term risk of tariffs, according to some thought leaders, while difficult to predict, is minimal. The major downside from a 10% blanket tariff is to the pharmaceutical sector but, given the impact of healthcare costs in the US, there could be carveouts, as per a note from Emkay Global. They go on to say that apparels is the other vulnerable sector but it has minimal exposure in the listed markets. And while a $7-billion hit to exports could destabilise the current account deficit in the short term, India has levers to be able to cope.

Jefferies believes that the mood in Delhi appears to be optimistic about a potential deal ahead of April 2, and possibly higher defense and oil and gas imports from the US could soften the impact. The brokerage believes that higher US import tariffs and other potential restrictions can be seen as a negative for automobile, auto components, and generic pharmaceutical companies, along with textile exporters. Limited impact can also seen in chemicals, IT and ports sector, it said.

The sequel to the budget announcements and the prequel to fourth quarter for engineering and defence companies is positive. I am inclined to believe that people have noticed the barrage of orders that have come in the recent past to the defence and infrastructure sector, showing that central government activity is back in action. Ministry of Defence signed a Rs 6,900-crore contract with Bharat Forge and Tata Advanced System, and Solar industries bagged an order worth Rs 6,084 crore from the same ministry. Nagarjuna Construction bagged a Rs 10,805-crore contract from BSNL, and L&T bagged a $4-billion project order from Qatar Energy, its biggest ever, albeit on the global side.

A clutch of IT businesses like Coforge and Wipro have bagged orders recently as well. Companies like BEL, BEML and others have repeatedly posted order wins on the exchange. Engineers India tells us that their order inflows in fiscal 2025 are northwards of Rs 8,000 crore versus inflows of Rs 3,400 crore in fiscal 2024. And they believe they will clock in about 25% revenue growth in fiscal 2026, with higher margins.

Crossing fingers for better times in the next financial year.

Lastly, as people look at sectors that they may want to fish in, picture this: India's MF AUM-to-GDP ratio clocked in a number of 18% in fiscal 2024. India is where the US was in 1990, and the US MF AUM grew at 20% CAGR for another decade. We have reached a number circa 19% in fiscal 2025, and there might be more in store. Figure out which asset management businesses would you want to invest in. Imagine the future, and reimagine it, and let it open infinite investing possibilities. As a saying that I read goes:

"It is the nature of the mind to live in the confines of its ideas. Until you encounter something never imagined - some great profusion of the heart that suddenly enlarges reality and tasks you with being wholly alive!"

Have a splendid weekend everyone, and best wishes for Gudi Padwa and Eid.

Until Next Time...

Niraj Shah