Tuesday's Talking Points
India Manufacturing resilient amidst Tariff Turbulence!
What’s the Point?
Last week, the US government imposed a 25% tariff on imports of automobiles and certain automobile parts. The US administration cited national security threats and the protection of the US automotive industry as key motives behind these tariffs. The impact on the Indian auto industry remains to be seen, with some companies potentially being more affected. For most Indian automobile and component manufacturers, the domestic market represents a significantly larger opportunity and should not be directly impacted by US tariffs. Meanwhile, the auto sector tariffs are a precursor to a larger round of tariffs expected by April 2, based on committee recommendations due on April 1. The general expectation is that these will be reciprocal tariffs, but the method and extent are yet to be known. This has led to concerns about the export potential for the Indian manufacturing industry. India's current low share in US imports, manageable US trade surplus, and potentially low impact on current exports highlights the opportunity for growth.
Numbers in Perspective

Source: US Bureau of Economic Analysis, Ministry of Commerce
Key concerns in the US around the auto industry and the actual tariff
According to the factsheet released by the US government around the tariff imposition, the key reason behind these tariffs is “to protect America’s automobile industry, which is vital to national security and has been undermined by excessive imports threatening America’s domestic industrial base and supply chains”. As per the factsheet, about 50% of automobiles sold in the US in 2024 were imported (vs 3% in 1985), and the ones manufactured domestically had ~50% imported content. It is clear that the focus is inward, to ensure that the US retains its industrial base.
Impact on Indian Auto Industry
The Indian auto industry primarily caters to the large domestic market. Within the automobile sector, few companies export to the US. While some auto component manufacturers have a significant share of revenue coming from the US, clarity is still awaited as to which components will have tariffs imposed. On the other hand, we believe that global manufacturers gaining a significantly higher share in Indian markets due to changes in tariffs is less likely.
Potential Tariffs on the Pharmaceutical sector – will generics be included?
In recent months, the US administration has indicated levying tariffs on imports of pharmaceutical products, which could be announced after the April 2 tariffs. The generic^ pharma industry, a significant contributor to lowering drug costs in the US, may be spared as recent statement from the US President indicated more concern around Ireland, China-based manufacturing facilities, and the use of tax havens for tax gains. India’s exports to the US are primarily in the generics space, and account for almost 50% of the overall US generics market by volume. Indian manufacturers operate at relatively low costs and margins, making it potentially difficult for US manufacturers to replace them. In fact, US generics supply-demand balance has been favourable for Indian manufacturers, with high active drug shortages. With ~USD32bn worth of small molecules going off-patent in coming 5-years, the opportunity for US generics producers remains fairly large.
^Copies of drugs whose patents have expired. Generics contain the exact same active ingredients as their brand-name counterparts and are usually synthesized from chemicals.
Impact on Indian manufacturing
India's exports to the US in the manufacturing goods category are largely low-tech and / or those with low addition in the country (generic medicines, garments, auto components, light machinery, mobile phone assemblies, chemicals etc.) and accounts for only 2% of overall US goods imports. About half of India's existing exports to the US fall mostly in the <15% tariff brackets (e.g. chemicals, engineering & electronics goods etc.) where duty cuts may be implemented near term to avoid reciprocal tariffs. To reduce the US administration’s concern on high trade balance, India could potentially shift imports from other places to the US. India was the 10th largest country by merchandise trade deficit for the US in 2024, with US$46bn of surplus (refer Chart 1), compared to their total trade deficit of >US$900bn.
Conclusion
India’s manufacturing space continues to enjoy benefits of cost advantages, improving infrastructure, policy support and growing domestic consumption prospects. Investors looking to take advantage of India’s rise as a manufacturing powerhouse may consider investing in the HDFC Manufacturing Fund. The fund invests at least 80% of its net assets in the manufacturing theme. The Fund has diversified exposure to companies that: (1) are engaged in manufacturing activity, (2) may benefit from Government’s Make-in-India initiatives, (3) are positioned to substitute India’s imports by manufacturing locally, (4) export goods manufactured in India and have the potential to increase employment in India.
Sources: US BEA, Ministry of Commerce, CMIE, Bloomberg, and other publicly available information
About Tuesday’s Talking Points (TTP): TTP is an effort by HDFC AMC to guide key conversations in the Indian financial markets and investing ecosystem. We aspire to do this by providing relevant facts, along with our perspective on the issue at hand. If you have a topic that you would like to be featured here, please write to us at [email protected]
Disclaimer: Views expressed herein are based on information available in publicly accessible media, involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those expressed or implied herein. The information herein is for general purposes only. Stocks/Sectors/Views referred are illustrative and should not be construed as an investment advice or a research report or a recommendation by HDFC Mutual Fund (“the Fund”) / HDFC Asset Management Company Limited (HDFC AMC) to buy or sell the stock or any other security. The Fund/ HDFC AMC is not indicating or guaranteeing returns on any investments. Past performance may or may not be sustained in the future and is not a guarantee of any future returns. The recipient(s), before taking any decision, should make their own investigation and seek appropriate professional advice.
MUTUAL FUND INVESTMENTS ARE SUBJECT TO MARKET RISKS, READ ALL SCHEME RELATED DOCUMENTS CAREFULLY.
HDFC Manufacturing Fund (An open-ended equity scheme following manufacturing theme)
The Scheme being thematic in nature carries higher risks versus diversified equity mutual funds on account of concentration and sector specific risks.