Indian Markets Bet On A Solution To India-US Tariff War
A 25% slab on exports into the US, which has now kicked in, is not good news
On Episode 649 of The Core Report, financial journalist Govindraj Ethiraj talks to Garima Kapoor, Economist & Executive Vice President at Elara Securities (India) as well as C S Vigneshwar. President at FADA.
SHOW NOTES
(00:00) Stories of the Day
(00:50) Indian markets bet on a solution to India-US tariff war
(04:36) Which sectors are really affected at peak tariff and why?
(14:51) Are Indian state owned refiners pulling back on Russian oil?
(16:49) Signs of weakness in India’s auto market as sales fall but a base effect may be affecting numbers and is there a small car revival?
(25:03) And Aamir Khan the actor makes a debut on The Core
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on [email protected].
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Good morning, it's Friday, the 8th of August and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.
The top stories and themes,
The Indian markets are betting on a solution to the India-US tariff war.
Which sectors are affected at peak tariff and why?
Are Indian state-owned refiners pulling back on Russian oil?
Signs of weakness in India's auto market as sales fall, though a base effect may be affecting numbers and there is a small car revival.
And Aamir Khan, the actor, makes a debut on the court.
It's The Theory Of Relativity
A 25% slab on exports into the US, which has now kicked in, is not good news.
But it's only about 6% or so off from most of the competing nations, particularly in Asia. Now, this is a level exporters feel can manage or can squeeze through with, obviously, some difficulty or much difficulty, unless they're, of course, to eat most of the difference, which seems at this point unlikely because it's likely to be split between importers in the US and, of course, consumers there as well. But at 50%, all bets are off the table and then it is an effective trade embargo, something that is obviously going to be very bad news.
But the markets are clearly betting that India will manage to negotiate its way to 25%, which means find a solution to the import of oil from the Russia issue that President Trump is currently focused on. A Bloomberg report, meanwhile, says that state-owned refiners are already pausing further purchases from Russia. Those include Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum.
Now, state-owned refiners do not and unlikely have taken unilateral decisions at times like this. And it's quite likely there is some confusion leading to a transmission loss and therefore maybe some delay in the way contracts could be signed in coming days. Remember, India has been blindsided totally by that 25% tariff, given that the expectation that it was or rather would be 15% and that deal would have been signed after some five rounds of negotiations.
A possible deal was clearly yanked off the table at the last moment for which someone on the Indian side should also answer. The Indian government is obviously striving to find a balance between domestic blowback versus Trump's penalties. Now, the consensus from the business side is that we should make peace.
Also, the final contours of the deal before it fell apart for whatever reason had most likely accounted for India's red lines on agriculture or dairy, even if the US was not happy with it at that point. So, pointing to the red lines as a problem is diverting from what clearly is a subsequent breakdown and failure of negotiations is what I feel. Now, making peace may not be politically expedient, but business in this context also means millions of jobs because it's the labour-intensive sectors like apparel, gems and jewellery and leather which will be the most hit, and more on that shortly.
The markets obviously believe, as the core report pointed out yesterday as well, that a window for further negotiations has been left open, as we can see, for around three weeks. The Sensex, which had dropped more than 700 points to hit an intraday low of 79,824, recovered more than 700 points and finally closed up 79 points to 80,623, while the Nifty closed up 21 points to 24,596. Incidentally, Swiss stocks were also up on Thursday.
And here's the background. And the reason we're talking about is because Switzerland was also hit by a high tariff, which is 39%, which is actually higher than India's baseline. And a delegation from Switzerland even rushed to Washington DC but could not be successful in reversing any of that.
Now, Switzerland is an interesting example because its watches, which form about 10% of its export basket, are made in Switzerland and are not likely to be shifted anywhere because the brand proposition is that it is made in Switzerland. And then there are chocolates, like Swiss chocolates and pharmaceuticals. Now, back on the Lal Street, the broader indices too recovered and ended in positive territory.
The Nifty mid-cap 100 was up about 0.3% and the small cap was up about 0.1%. The rupee, like the markets, ignored yesterday's shock announcements, which in retrospect and viewed calmly were perhaps not so shocking at all. At least the markets, whether the Lal Street or Wall Street, seem more sanguine about tariffs or they're thinking about the here and now rather than the tomorrow. So the rupee, to come back, closed at about Rs.
87.70 against the US dollar and that was up slightly from Rs. 87.73 on Wednesday, according to Reuters. Now, there are two questions which merit addressing.
First, what is the weighted average tariff that Indian exports will face? Because remember, all exports are not hit right now. For example, pharmaceuticals is not hit and then there are existing tariffs as well in other areas. So the second is, what are the knock-on effects of these tariffs? And this is a question we've posed in the past too.
I reached out to Garima Kapoor, Executive Vice President and Chief Economist at Elara Capital and I began by asking her to walk us through what the weighted average tariff rate is, how it was being computed and then what would the impact of the additional 25% be.
INTERVIEW TRANSCRIPT
Garima Kapoor: So before the tariffs kicked in, any form of reciprocal tariff at 25% kicked in last week, India already had a tariff on auto and auto components and tariff on that were governed by article section 232 of the US administration which covered iron, steel, copper, aluminium. Then the 25% tariff kicked in last week, that was a base one which were the 10% became 25%. However, pharma and electronic exports, mainly computer hardware and mobile phones were excluded from that.
And yesterday, another 25 stacked up on that. So technically, while one would say 25 plus 25 is a 50% tariff, it's important to see what is the effective rate, at what rate literally hits us as the economy at the macro level. And that becomes a function of our exports at each category where the different tariff rates apply.
So the section 232 where iron, steel, aluminium and copper exist, then auto and auto components, then across the board excluding pharma and excluding electronics. And that's how when you calculate the export weighted tariff applicable to India, you arrive at somewhere about 32-33%. Of course, this is not a perfect calculation, because there are exceptions in those items as well.
But broadly, the right way to look at it is if other countries had 25% or 20% base rate, the effective rate in India is about 33%, which is export weighted.
Govindraj Ethiraj: Got it. And now within this, you mentioned, for example, iron, steel, aluminium, pharmaceuticals. So what are the areas which are more hit and what are the areas that are less hit relatively?
Garima Kapoor: So obviously, first thing first, everything is on merchandise goods. So services are out of it. Trump has very smartly not hit any economy or any country in the world with services, because the immigration restrictions that the US is bringing in, the restrictions on H1B visa, and generally the greater dominance of service exports or services in the US economy would mean that if they do anything on services, the inflation will shoot up immediately.
So when you bifurcate US inflation, you can see the services inflation is plummeting, whereas goods inflation has started to go up. So services stay out of it. Second, what stays out of it is, of course, as I mentioned to you, pharma, etc.
But when we look at the impact beyond pharma, electronics and services, the best way to understand is where the significant exports of India are in terms of share of each commodity line, which do not have an exception at all, or any kind of adjustment that is given. And then you compare those tariffs, so what are the competitive tariff rates for our countries other like Vietnam or Bangladesh, and then look at the competitive disadvantage that India has on tariff differentials. But by that logic, labour intensive goods, mainly those chemicals outside pharmaceuticals, textiles, including that of apple, and other labour intensive goods like gems and jewellery seem to be the most significantly impacted, because their share for the US is significant.
And their India-UK trade deal will not help significantly to mitigate or to reduce the impact from the US.
Govindraj Ethiraj: But what are we looking at in terms of pharmaceuticals right now?
Garima Kapoor: See, for pharmaceuticals across the board, there is an investigation that the US administration is conducting. He has been threatening persistently that across the board, pharmaceuticals will have a 25% tariff. Remember, the US barely makes any of its standards, they're largely dependent on Europe, India and China.
And hence, to basically onshore or basically increase the manufacturing capacity in US for pharmaceuticals and drugs in general, the tariffs that's been spoken about is 25% across board, but yet not implemented or announced.
Govindraj Ethiraj: So as of now, there are no tariffs or 10%?
Garima Kapoor: There are no tariffs on pharmaceuticals. No tariffs on pharmaceuticals and no tariffs on mobile electronics and computer hardware.
Govindraj Ethiraj: Right. So the Apple ecosystem is spared at least for now. Okay, so in your calculations, once again, you have looked at the worst case situation as we know it today, which includes the additional 25% to come on on 27th of August.
Now, what are the knock-on effects, you know, of all of this? So one is to say the exact computation that this is the amount of exports we could lose. But of course, now we're looking at almost the equivalent of a blockade, rather than just an export restriction.
But that apart, what are the other knock-on effects, if you've seen any so far, or you are expecting, because of all these tariffs kicking in?
Garima Kapoor: See, the first knock-on effect would be, as you mentioned, the impact in baseline export across the board, because anything about 25% makes you actually uncompetitive, no matter what you try to do. So the impact after yesterday's tariff may not be as significant, because you already became somewhat uncompetitive at 25%. The second knock-on effect that you will basically take is going to be in terms of your currency, more so because there is going to be a sympathetic impact on the currency.
You have already seen the Rupee respond to the relative negative differential that India has vis-a-vis that of the competing peers. So a move towards 88 or above cannot be ruled out in the near term. In fact, a gradually depreciating currency would be positive, because it would be the first leg of a defence against any kind of competitive disadvantage that India is put into.
The third knock-on effect that we probably look at is in terms of flows, more so because India, until about a quarter ago, or even fairly when Trump came to power, was looked at most favourably placed in terms of geopolitical dynamics to attract any incremental supply chain investments coming from US or coming from competing countries or like-minded countries like US. So naturally, that kind of impact gets negated. So if I'm looking at, let's say, India versus China versus some other economies, and I look at the relative valuation the markets are trading at versus the relative uncertainties and risks that you will now account into India as a risk premium versus others, would naturally make most investors edgy at putting incremental money into India.
The third knock-on effect is likely to be in terms of growth, more direct and indirect, indirect in terms of possible job losses, also in terms of freeze of any further plans of investments. And I do see as a response to that, both policymakers, that is RBI and the government, would like to respond to it with certain fiscal measures. So in my assessment, some policy measures from the government should be on the cards, at least to limit the negative impact that some of the high labour-intensive sectors like textiles or leather or gems are likely to face in the coming days.
Govindraj Ethiraj: Right. Garima, it's been a pleasure speaking with you. Thank you so much for joining me.
Garima Kapoor: Thank you, Govind.
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While things look grim for Indian exporters, could the latest set of numbers from China's export data show a way out? China's export growth has jumped in the fastest gain since April as demand from around the world compensated for the continued slump in shipments to the United States, according to a Bloomberg report. Total exports rose 7.2% in July from a year earlier to about $322 billion, which apparently was a surprise to most economists who had expected a slowdown from June's upwardly revised increase of about 6%.
Now, the statistical effect of a low base last year also accounts for that upswing in year-on-year terms. But data released on Thursday by Chinese customs authorities showed that the pickup was driven by strong growth in shipments to the European Union, Southeast Asia, Australia and Hong Kong, among other markets, which more than made up for the fourth month of double-digit declines in U.S. purchases. The China economist at BNP Paribas told Bloomberg that what really supported China's stronger-than-expected overseas shipments in the past three months was exposed to non-U.S. markets.
India's own electronics exports have jumped. Remember, at this point, mobile phones and electronics are exempt. We're talking about the United States.
India's electronics exports saw a 47% jump year-on-year, touching $12.4 billion in the first quarter of 2026, according to data from the India Cellular and Electronics Association. And this sharp increase was largely driven by strong growth in mobile phone exports. In contrast, electronics exports had stood at about $8.4 billion during the April-June quarter of 2024-2025, according to that industry's body statement.
And Gold Prices Are Up
With the U.S. tariffs now in full force as of Thursday, gold prices have risen as safe-haven buying has kicked in again. Spot gold was up slightly to about $3,383 per ounce, and gold futures were at about $3,453 per ounce.
Analysts told Reuters that gold is now moving towards the doorstep of the psychological $3,400 per ounce mark, with risk assets being kept off-balance somewhat by the constant tariff proclamations by the U.S. president.
Russian Oil
India's state-owned oil refiners are now pulling back from purchases of Russian crude for now, according to an exclusive report on Bloomberg. Companies including Indian Oil, Hindustan Petroleum, and Bharat Petroleum plan to skip spot purchases of crude in the upcoming buying cycle until there's clear government guidance, those sources told Bloomberg, and this would affect buying of Russia's Urals cargoes for October loading.
So the global oil market is now zeroed in on India's crude purchasing after President Trump doubled levy on all Indian exports to the U.S. as a direct punishment for the country's refiners taking Russian crude. Of course, that levy or tariff will kick in after the 27th of August, and there is a window for India to negotiate its way out. But the escalation, which hasn't been matched by similar action against other countries, including China, which of course is a major buyer, is expected to put pressure on Moscow to end the war in Ukraine.
Brent crude was quoting around $67 a barrel on Thursday, following a five-day drop, according to Bloomberg. So to give you a background on how oil purchases work, beyond term contracts, which are longer-term, oil producers and refiners typically buy for short-run cycles, with cargoes booked about one and a half to two months ahead of loading. And the planned-ahead pattern allows users to ensure that they have enough on hand to meet their requirements, according to that Bloomberg report.
In recent days, tankers have offloaded some cargoes at Indian ports, though with some delays. And at peak, India was importing more than 2 million barrels a day of Russian oil. Analysts told Bloomberg that if Russian supplies are more difficult, Middle East crudes with the geographical advantages and a wide range of quality will be a prime substitute, especially from Saudi Arabia and Iraq.
The only hitch, of course, is that they would be more expensive, but the gap, or the price gap, between Russian crude and other crude is not as much as it was a few years ago.
Auto Sales Dip
The one signal that markets are obviously looking for is an improvement in earnings. And the earnings would be driven, of course, by the performance of auto companies and the economy in general, which is, of course, a little weak.
Now, automobile retail sales in July have fallen 4.3 percent from the previous year for various reasons, including, of course, a demand slowdown, according to the Federation of Automobile Dealers Associations' statements on Thursday. Within that, two-wheeler sales, again, surprisingly, were down 6.5 percent. Passenger vehicle sales were down about 1 percent.
The only question here could be if July was an aberration last year and thus creating a higher base effect. Passenger vehicle sales were down 0.8 percent in July, though volumes were up about 10 percent on a monthly basis. FADA says that targeted schemes by auto companies with new models and aggressive rural marketing powered hinterland sales, which picked up towards month-end.
So now the focus is really on the festive season. As you know, every year around this time, people start looking to all the festivals that are upcoming and if and how consumers will start buying particularly more expensive consumer products and, of course, cars and two-wheelers. FADA also said that urban demand, though, has remained muted due to low enquiry and restrained customer sentiment.
Inventory levels are at about 55 days, which is higher than normal, and there is streamlined finance facilitation and intensified urban outreach, which will be important for sustaining festive season growth, according to FADA. I reached out to Coimbatore-based CS Vigneshwar, president of FADA, and I began by asking him for a larger mood check on how the market was doing right now and also about small cars, where there seems to be a reversal in trend.
INTERVIEW TRANSCRIPT
C S Vigneshwar: You see, the overall mood has been quite decent. What we need to see is that yes, we had nearly a 4.3% fall in the industry across all verticals. But here we are comparing 4.3% means we are comparing 2024 July. What we also need to take into consideration is what happened before 2024 July. So 2024, there was an absolute drop in terms of numbers in April, May and June, which got postponed to July. So July was a bumper month.
And it so happens that in this year's 2025, April, May and June, we've been having a decent run. The whole industry was growing at about 5.5% which didn't happen last year. So we are thinking that the current July is a usual July competing against a kind of a normal July of 2024.
So that's why there's a drop. Otherwise, the sentiment is decent. Of course, we need to wait and watch what Trump tariffs do to the industry in general.
Govindraj Ethiraj: Right. And between two wheelers and four wheelers, now both have shown a fall while three wheelers is up very slightly. Is there anything beyond the numbers that we are not seeing right now or you're seeing particularly on four wheelers and two wheelers?
C S Vigneshwar: We haven't noticed much of those things happen because even our sentiment survey, which we take with the dealers, are actually quite positive about the coming few months, because we had a great monsoon, which is going to help out in rural sales. We're also having a lot of government schemes announced by different state governments for helping EV sales and two wheeler sales. We're also seeing that the festive season is coming and we should have a strong festive season.
Govindraj Ethiraj: Right. And what's doing well, you know, if you were to look at, let's say, in terms of models or types of vehicles, whether it's two wheelers or four wheelers, is there anything that stood out or standing out right now in terms of sales?
C S Vigneshwar: In the last two months, the small cars from Maruti, which were not Maruti and such companies who have the entry level cars, started to do well again in the last two months, which again is a good thing for the industry as such. And more importantly, we also saw that the overall market sentiment was also good. Another thing also to see is the luxury segment of the German cars.
They're also doing well in terms of BMW, Audi and Mercedes Benz.
Govindraj Ethiraj: So that's interesting because you're saying that small cars are picking up and I would imagine that's happening after a while. So what's triggered that?
C S Vigneshwar: Honestly, I don't have the exact reasons for it, but overall, I think that offers are better. I think the products also, some of them have been refreshed and there is more focus on these entry level cars. And to an extent, the offers also are quite high.
The second hand market in PVs used to do quite well in the last few years because a lot of customers felt that buying a second hand vehicle also is an option. But now because of better offers from the entry level segments, this has started doing well.
Govindraj Ethiraj: Right. And how are things looking, you know, some time ago, which is a few weeks ago, US FADA had said that basically manufacturers need to, you know, further calibrate their dispatches. That seems to have happened a little bit, but you're still looking at a 55 day inventory level, as I can see.
C S Vigneshwar: Yes. So it has remained very similar to last month. The calibration has to happen much more or they have to be quite cautious regarding what they're going to do for the festive month, not increase stock too much so that it becomes the same old story which happened last year where the stocks went to 80, 85 days around October, November.
So this has to be calibrated. They need to, for the next three, four months, definitely retailers have to outpace wholesalers in a big way for this calibration to come down because we advise 21 days stock, which is more than enough of choices given to the customers. Anything goes above that probably doesn't make sense.
Govindraj Ethiraj: Are you seeing any challenges because of constrained income levels? And is there any other change that you're seeing at the entry level?
C S Vigneshwar: The entry level segment in the urban areas are of course going through its difficulties because the cost of cars have far outpaced the increase in salaries. And the cost of cars, of course, has gone up by an entry level and everywhere else, but most of the entry level where these cost increases are important. And we've seen that salaries have not gone as fast as the cars cost.
And the car costs have kept climbing up because of improving safety and emission norms. So it's certainly a concern. And also, of course, there is one small example of TCS laying off its employees, which is about 12,000 employees.
They are considered to be the bellwether of the IT industry. So if it happens to them, perhaps it will also happen elsewhere. And hopefully this is just a one-off and hopefully industries like IT, which contribute a lot in the urban sector, continue to perform strongly.
Govindraj Ethiraj: Vignesh, you're in Coimbatore, which is also adjacent to the apparel industry and particularly smaller enterprises. I mean, I know it's early days, but what's the sense that you're getting with all this tariff negotiations going on and all the stress around it?
C S Vigneshwar: In the textile sector, when you look at the 25% increase, which was a base tariff announced, that is still manageable because the lowest tariff for our competing nations was at about 19%. So 19 versus 25, the 6% can still be managed. But once it gets to 50%, it becomes a no-brainer because once it gets into 50%, it doesn't matter if it's 50 or 500.
We become completely uncompetitive. But a good part of it, I think, if I can remember the figures, the whole industry is about 150 billion in terms of exports and all that, out of which nearly 110-115 billion is actually domestic consumption when it comes to textiles. And out of the 30-35 billion which is being exported, about 12 billion dollars is specifically for the American exports.
It's pretty much going to be wiped out. And either we need to find a domestic market for that or we need to find other markets which can take that business. It's going to be difficult.
It's not going to be easy. But certainly there are options where the government can help, help the industry to get out of the situation.
Govindraj Ethiraj: Right. Vignesh, always a pleasure speaking with you. Thank you so much for joining me.
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OTT vs Theatrical Release
Actor Aamir Khan makes his appearance on The Core on the media room in conversation with media expert and author Vanita Kohli Khandekar, and they're going to be talking about the current state of film distribution, particularly OTT versus theatrical releases, and Aamir Khan makes a point that he's betting or he has bet more on theatricals versus OTT.
INTERVIEW TRANSCRIPT
Vanita Kohli-Khandekar: What did your friends say? I know Ajay Bijli is a friend. What did some of your friends say?
Aamir Khan: Well, my friends were all scared for me, you know, that I'm taking a huge risk. But as it has turned out, the theatrical business of the film has been really good. And that gave me the independence, now that I was producing the film all alone.
It gave me the independence to go the route I wanted. And the route that I really wanted was the one that I'd been working on for 15 years in my head. That this is the model.
You see, traditionally, all cinema goers, doesn't matter which part of the world they're in. In India, cinema has been there for over 100 years. We always watch films pay-per-view.
We go to the theatre, we pay once and we watch the film once. So pay-per-view is a model. That's how we watch films.
That's how we watch films. We go to the theatre once, we pay once, we watch once. If we want to watch the film again, we pay again and watch it again.
This is called a pay-per-view model. So, that is the model how we watch films. So I want to take that same model onto a digital platform.
Of course, the price would be different. On a digital platform, my purpose is to reach as many people as possible. So one, the reach is important.
And YouTube gives me that reach. Internet penetration gives me that reach. And the pricing is important because I want my film to be watched by...
You know, this was called a mass medium at one time. But I feel that over the years, the working class will find it very difficult to watch a film of their choice. You know, to go with their family to a theatre.
It's getting more and more expensive for them to do that. So I wanted to reach, you know, the working class, the mass of India. I want them to see my films.
And I want it to reach them at their convenience and at a price point that is good for them, that is appealing to them. That is affordable to them.
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