Synopsis:
On Wednesday, Trump announced that the US will be imposing a 25 percent plus trade tariff & a penalty on India as it continues buying cheap oil from Russia. These 25 percent tariffs will impact many businesses, of which Nuvama has pointed out some notable auto ancillary companies.
The Indian Auto Ancillary business is in threat as the US has put 25 percent tariffs on Indian imports starting 1st August. Indian Auto ancillary business currently stands at Rs 6.1 lakh crore, which grew by 9.8 percent from its previous year’s turnover of Rs 5.6 lakh crore and accounts for 2.3 percent of India’s GDP. This makes it crucial for the industry to perform well in the future.
Currently, India exported goods worth Rs $21.2 billion in FY24, which grew by 5 percent from its previous year export of $20.1 billion. Since India imported goods worth $20.9 billion, this led to a trade surplus of $300 million, which is a remarkable achievement for India.
According to the ACMA report, the USA accounts for 27 percent of India’s total auto ancillary exports, followed by Germany at 8 percent and Turkey at 5 percent. This heavy reliance on the U.S. makes Indian ancillary exports highly vulnerable, especially if tariffs are not eased or rolled back. Now, Nuvama Institutional Equities has taken a key note in this sector and has taken a few companies that may be impacted by these tariffs.
According to a note by the brokerage, discussions with component manufacturers reveal that tariffs on commercial vehicle (CV) parts have surged significantly from 10 percent in the first quarter to 25 percent.
On the other hand, tariffs on passenger vehicle (PV) components were already sitting at 25 percent during that same period. Some of the companies likely to be hit the hardest are those with high exposure to the U.S. market.
Stocks likely to be Affected
Bharat Forge gets over 20 percent of its revenue from the U.S., with 55–60 percent coming from commercial vehicles (CVs), 5–10 percent from passenger vehicles (PVs), and the rest from non-auto segments.
Ramakrishna Forgings earns more than 30 percent of its revenue from North America, mostly from the CV segment. Balkrishna Industries also has around 15 percent of its sales coming from the Americas, mainly in agriculture, construction, and mining equipment. The impact could come from two sides: lower demand due to higher costs and the pressure on companies to absorb some of the tariff increase themselves.
Written by Satyajeet Mukherjee
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