Indian IT and Gems Sector Under Pressure as Trump’s Tariff Shakes Markets

US President Donald Trump’s decision to impose a 26% reciprocal tariff on Indian exports has sent shockwaves through India’s economy. While the tariffs impact multiple sectors, market analysts highlight IT and gems & jewellery as the most vulnerable due to their heavy reliance on US demand.

Sectors at Risk: IT, Gems & Jewellery Face Uncertainty

IT Sector Faces Revenue Pressure

• The Indian IT sector heavily depends on the US, with major companies like Infosys, TCS, Wipro, and HCL Technologies generating over 50% of their revenues from US-based clients.

• A 26% tariff on Indian IT services could make outsourcing more expensive, potentially leading to a slowdown in deal wins and contract renewals from American businesses.

• The Nifty IT index has already fallen over 3.5%, with stocks like Coforge, Mphasis, and Persistent Systems crashing by up to 8%.

Gems & Jewellery Exports May Suffer

• The gems and jewellery sector is another major exporter to the US, with over 11.5% of India’s total exports going to the American market.

• Market analysts fear a drop in luxury spending in the US, which could reduce demand for Indian jewellery and cut profit margins for exporters.

Experts’ Take: Market Reaction and Possible Policy Moves

US Inflation Concerns and Impact on Demand

• Siddharth Khemka, Head of Research at Motilal Oswal, explained that higher tariffs mean higher prices, which could reduce US consumer demand for Indian goods.

• With US consumers facing economic pressure, sectors dependent on non-essential and high-value spending (like IT services and luxury jewellery) may feel the pinch the most.

Will the Indian Government Seek Exemptions?

• Despite the panic selling in IT and gems stocks, sources from India’s finance ministry suggest that the government is hopeful of securing tariff exemptions for key sectors.

• The Federation of Indian Export Organizations (FIEO) also stated that India’s position remains "comparatively favorable" compared to other South Asian countries like Vietnam and Sri Lanka, which are facing even higher tariffs.

Can India Re-Route Trade to Other Markets?

• Some experts believe India may look towards alternative trade deals to reduce dependence on the US market.

• Satwik Jain of Generational Capital suggested that India could negotiate new trade agreements with the European Union to offset losses.

Will FPIs Exit India Over Trade War Fears?

• Foreign Portfolio Investors (FPIs) have already been pulling funds from emerging markets due to global uncertainties, and the latest tariffs could further impact investor confidence.

• Siddharth Bhamre, Head of Research at Asit C Mehta, pointed out that the impact on Indian equities will depend on whether the tariffs apply to services or just physical goods.

Defensive Sectors Outperform Amid Tariff Fears

• Amid concerns of a global trade slowdown, investors have been shifting towards defensive sectors like FMCG and domestic consumption-oriented stocks.

• Arindam Mandal of Marcellus Investment noted that certain sectors, like pharmaceuticals and semiconductors, may be shielded from the tariff impact, thanks to potential exemptions.

Conclusion

Trump’s 26% reciprocal tariff on Indian exports has put immense pressure on the IT and gems sectors, leading to a sharp stock market sell-off. With India’s economy closely tied to US trade, experts warn of revenue slowdowns, weaker investor sentiment, and potential inflation concerns in America.

While India hopes for tariff exemptions or alternative trade agreements, market volatility is expected in the near term. Investors should brace for continued uncertainty as global trade tensions escalate.

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