India Likely To Face Less Than 25% Tariff, Expect Deal In Couple Of Months: Saurabh Mukherjea

India is expected to negotiate a more favourable trade deal with the US despite the 25% tariff announced by US President Donald Trump, according to Saurabh Mukherjea, Founder and Chief Investment Officer of Marcellus Investment Managers.

Trump on Wednesday announced a 25% tariff and a penalty on India, effective August 1.

Mukherjea described the move as a “pressure tactic” to constrain India's growing trade relationship with Russia. “My reckoning is that in the next couple of months, India and America will crack a deal. I strongly suspect India will end up with tariffs better than the 25% angle,” Mukherjea told NDTV Profit, adding that negotiations on the proposed India-U.S. trade agreement are likely to conclude soon.

So, ‘TACO'—Trump Always Chickens Out—is a well-known refrain in American trading circles. I suspect it'll soon become equally popular in India,” he added.

The pressure from the White House is seen as an effort to curb India's purchase of Russian oil, which remains a cost-effective option for New Delhi. However, Mukherjea expressed scepticism about the US succeeding in this objective.

“It is pretty clear that Trump is using this as a way to browbeat India into reducing its purchase of Russian oil. I'm not so sure that it'll succeed. I think India quite rightly buys Russian oil because it's cheaper than the stuff available from elsewhere in the world,” he said. 

Despite the tariff threat, Mukherjea remains optimistic about certain Indian sectors, particularly IT, pharmaceuticals and electronics. He believes these sectors are likely to be exempt from any punitive tariffs.

“I think IT, pharma and electronics will be exempt even if this 25% tariff were to go through. There is a high chance that the three big Indian exports to America will be completely exempt from the tariff,” he explained.

Mukherjea also underlined the areas where the US depends on India. 

“America needs India on two fronts. America needs India to reduce its dependence on China for electronics, Apple being the star play there. And America needs India to reduce its dependence on China for active pharmaceutical ingredients,” the top analyst noted.

He said China still supplies 70-80% of America's API. India supplies the remaining 20-30%. “So, America clearly wants to diversify away from China.”

The “stumbling block” is the US desire to access the Indian market for agricultural products, dairy and poultry produce.

Mukherjea cautioned that India's economy is deeply integrated with global markets, making complete insulation difficult. He pointed to a domestic consumption downturn, driven by a fragile job market, which could persist for several quarters.

Companies like Divi's Laboratories, a long-standing holding for Marcellus Investment Managers, and Acutas (formerly Ami Organics) were picked by Mukherjea as strong investment bets in the pharma and API space. In electronics, Dixon Technologies is likely to witness a potential opportunity, especially if its stock price dips due to market reactions to Trump's threats, according to Mukherjea.