By Craig Mellow

There's good news and bad news for India from President Donald Trump's tariff turmoil.

The best news is that goods exports to the U.S. accounted for just over 1% of India's gross domestic product last year, one of the lowest among leading economies.

The second-best news is that India isn't China. Washington has a strategic interest in keeping it friendly, as evidenced by Vice President JD Vance's pending visit. U.S. companies have renewed incentive to cultivate Indian manufacturing. Witness Apple's "airlift" of $2 billion worth of iPhones from India in March.

Add in veteran Prime Minister Narendra Modi's demonstrated chemistry with Trump, and macroeconomic aftershocks tilting Delhi's way.

A 15% plunge in world oil prices since Trump's April 2 "Liberation Day" slashes India's import bill. A weakening dollar could make it easier for the Reserve Bank of India to keep cutting interest rates.

"Modi has one of the best geopolitical hands to play in a generation," says Samir Kapadia, founder of India Index, which highlights supply-chain opportunities.

At least some of that good fortune may be priced in, however. The iShares MSCI India exchange-traded fund has held its ground since Liberation Day, while the S&P 500 is off 7%.

Bad news could be coming from "second-order effects," says Venkat Pasupuleti, portfolio manager for India at Dalton Investments. Some of India's biggest stocks, like Infosys and Tata Consultancy Services, are IT outsourcers vulnerable to the sinking mood of their largely U.S. customers.

From the other direction, China may try to counter U.S. tariffs by flooding India, among other places, with cheap exports.

Markets will be watching how deftly Modi plays those strong cards in trade talks he has promised to turbocharge. India boasts the highest tariffs among leading G-20 economies, for a reason. The main reason is protecting the two-thirds of the population that still lives off the land in rural areas. Open market access for superproductive U.S. farmers "would be political suicide" for Modi, Pasupuleti notes.

The prime minister will hope to buy off Trump with some blockbuster defense purchases and fuzzier promises to import more U.S. oil and liquefied natural gas. "What's not clear is the ask from the American side," notes Vasuki Shastry, a senior advisor at Gatehouse advisory partners.

India's trade surplus with the U.S. is also moderate for a reason: The Make in India program, launched when Modi first took office in 2014, has lured few factories out of China compared with, say, Vietnam.

What Modi has excelled at is building infrastructure, physical and digital, enough to catalyze a manufacturing surge now, argues Mark Martyrossian, a director at emerging markets specialist Aubrey Capital Management.

"Modi built it, and a huge number of companies are coming to capitalize on it," he says.

Martyrossian is accordingly bullish on a range of Indian stocks harnessed to what he sees as unstoppable domestic growth, from scooter manufacturers to Eternal, parent of delivery champ Zomato.

Dalton's Pasupuleti is "cautiously optimistic on more large-cap exposure." He likes No. 2 internet provider Bharti Airtel, which is benefiting from industry consolidation and consequent latitude to raise prices.

The IT outsourcers have priced in some demand shock -- Infosys shares have cratered by a quarter since early February -- and may be attractive on further dips.

Still, however many bear hugs Modi bestows on Trump, "We are heading into very, very choppy waters," Pasupuleti concludes.

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(END) Dow Jones Newswires

April 18, 2025 21:30 ET (01:30 GMT)

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