Trump tariff: Auto, metals, pharma stocks in focus today; here's why

Automobile, metals and pharmaceutical stocks are in focus today after the US President Donald Trump imposed a 'discounted' reciprocal import tariff of 27 per cent on India overnight. To be sure, some goods will not be subject to the reciprocal tariff. They include steel and aluminum articles and autos and auto parts, which are already subject to Section 232 tariffs. The list exempted pharmaceuticals, as per the Fact Sheet issued by The White House. 

The pharma development came in line with Nomura's base case expectations. The foreign brokerage had suggested that pharma tariffs may not be imposed, but postponed to a later date. Aurobindo Pharma (48 per cent), Zydus Lifesciences (47 per cent) and Dr Reddys (46 per cent) were among pharma names with higher US revenue mix.

The White House insisted that there is a need to maintain a resilient domestic manufacturing capacity in advanced sectors like pharmaceuticals. It also called for building capacity in autos, shipbuilding, transport equipment, technology products, machine tools, and basic and fabricated metals.

"Defensive stocks (FMCG, utilities) may outperform, while cyclical sectors (autos, metals) could underperform. Long-term implications hinge on negotiation outcomes, but near-term caution is advised," said Pranay Aggarwal - Director & CEO at Stoxkart. 

Trump had already announced 25 per cent tariffs on auto and auto component imports and a similar tariff on steel and aluminum imports into the US. CLSA, in a recent note, highlighted that auto majors such as Tata Motors (via JLR), Bharat Forge, Sona BLW, and Samvardhana Motherson (SAMIL) have export ties to the US, with products either manufactured in India or other locations.

Unlike its peers, SAMIL operates manufacturing facilities in the US, including a significant plant in Alabama. This enables the company to meet US demand more effectively, potentially mitigating the impact of any trade-related disruptions, according to CLSA.

The foreign brokerage also pointed out that approximately 31 per cent of Jaguar Land Rover's (JLR) retail sales are generated in the US, with models produced in the UK. As a result, Tata Motors faces exposure to higher tariffs. Additionally, the US has historically been a lower-margin market for JLR, CLSA noted.

Sona BLW derives 43 per cent of its revenue from the US, while Bharat Forge generates 38 per cent, with the majority of their products manufactured in India rather than the US, CLSA added.

CLSA said any price increase in the US market would lead to some softening of demand for cars as higher duty on imported components would result in cost escalation for made-in-US cars or direct increase in the price of imported vehicles. 

Meanwhile, US imports about $100 billion worth steel and aluminum annually. The annual additional tariff resulting from the new tariff is likely to be around $25 billion, some estimates suggested. 

On India, the fact sheet said: "India imposes their own uniquely burdensome and/or duplicative testing and certification requirements in sectors such as chemicals, telecom products, and medical devices that make it difficult or costly for American companies to sell their products in India. If these barriers were removed, it is estimated that US exports would increase by at least $5.3 billion annually."