US Reciprocal Tariffs Could Trigger Slowdown, Minor Recession: Nirmal Bang’s Rahul Arora

Reciprocal tariffs announced by United States President Donald Trump could lead to inflationary pressures and a slowdown in consumption, with broader implications for global markets, according to Rahul Arora, chief executive officer of Nirmal Bang Institutional Equities.

Speaking to NDTV Profit, Arora cautioned that it is “too early” to fully gauge the extent of the impact, as the announcement was made “practically in the dead of the night".

Arora pointed to bond market movements as an early indicator of potential economic stress. “Somewhere, it is indicating that we’re going to head into a massive slowdown or a minor recession at some point this year,” he said, noting that the US 10-year bond yield fell 3.5% the previous day, indicating concerns of an impending slowdown or even a minor recession later this year.

While some trade benefits could emerge for India, compared to nations like Vietnam, Arora claimed the competitive gap with China has narrowed significantly. “The differential with China has largely been taken out of the window—it’s now just an 8% difference,” Arora said.

The impact of these tariffs will undoubtedly be inflationary, he emphasised.  

“There is no question that this is going to affect US consumption and slow down that part of their economy,” Arora said, adding that the ongoing geopolitical uncertainties in Russia and Ukraine further complicate the global economic outlook.

Commenting on the pharmaceutical sector, Arora remained cautious despite reports that it was exempt from the tariffs. “India’s trade deficit with the US stands at $46 billion, and pharma accounts for nearly 15% of it. If it is truly exempted, that’s a huge development,” he said, stressing the need for a deeper analysis of the official documents. The top executive noted that the US President had made a commitment to bring pharma manufacturing back to the US, suggesting potential future shifts in policy.

Arora warned the new global trade environment is becoming increasingly protectionist. “If you and I had this conversation in October, no one would have thought we would be entering a world that is inward-looking and protectionist,” he noted. 

In terms of market impact, Arora does not expect a significant positive shift. “I don’t think we are going back to the old highs anytime soon. Nifty at 27,000 is a distant dream for the remaining nine months,” he asserted.

When asked about potential beneficiaries from these tariff changes, Arora said there are no major sectors that would see a material earnings impact. 

"From a market perspective, IT, FMCG, banks, and Reliance make up about 75% of the Nifty, and I don’t see these tariffs materially moving the index in either direction," he concluded.

India, which was also anticipating the impact of tariff threats, has been hit with a reciprocal tariff of 26%, slightly higher than the expected 25%.