A tariff deal with US will end current fluctuation and uncertainty for India: Manishi Raychaudhuri

Time of India

23-07-2025

Manishi Raychaudhuri
, Veteran Investor In Asian Equities, highlights the potential of tariff deals between ASEAN and India, noting existing US agreements with Vietnam, the UK, Indonesia, and Japan. India currently has an interim 10% tariff deal till 1st August, and is waiting for an India-specific deal. A deal similar to Japan's 15% would be ideal. Policy certainty regarding tariff rules is crucial for investment decisions, ending the current fluctuation and uncertainty.
Raychaudhuri also says that the sentiment for emerging markets as a whole has improved considerably over the last two months and there are a few drivers for that. Emerging markets are in a much better position to give both fiscal and monetary stimulus to revive their economies.
Does it come as a surprise that finally the US has a deal with Japan? Equity markets, of course, are rejoicing in this move.
Manishi Raychaudhuri:
No, undoubtedly it has been in the offing for a while but the timeline and the conclusion of this deal does come as a surprise to me because even about a week or so ago, it was under a cloud. I have not seen the details of this deal because the sticking point was on cars, on autos, which is the biggest quantum of Japanese exports to the United States. But if one looks at the headlines, then it seems kind of agreeable to both sides and that is indeed a positive surprise.
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Auto exports account for almost 28% of all the Japanese shipment to the US and that is indeed big for the auto counters. Along with that, help us understand how the sentiment is building up for the emerging markets as well because on the India front we have been waiting to see what sort of a rate actually comes through. Also, what do you think of the macro setup now?
Manishi Raychaudhuri:
In general, I would say that the sentiment for emerging markets as a whole has improved quite considerably over the last one to two months and there are a few drivers for that. It is now clear that emerging markets are in a much better position to give both fiscal and monetary stimulus, particularly monetary stimulus to revive their economies. The emerging markets never faced inflation scare and if you look at the trajectory of CPI inflation in almost most of the emerging markets particularly in Asia, they have come down drastically.
In fact, most of the Asian economies are in the range of zero to 2% inflation which gives a lot of room for their central banks to give monetary stimulus, so that is reason number one. Second, the US dollar has depreciated about 10% this year and compared to what economists call the real effective exchange rate of the dollar, there could be more depreciation of the US dollar in the offing. Maybe the pace of depreciation may not be as fast as we have seen in the last few months, but there could be depreciation nonetheless and that is a very strong tailwind for emerging markets.
What the investors are waiting to encounter are whether the earnings estimates bottom out and begin to move up. As of now, only Korea and Taiwan have seen up-moves in earnings estimates. India could turn out to be the next with the rate cuts and the government spending coming back, but it would possibly be relegated to the later part of this year. In the meantime, we could see some more time correction and that is not a bad outcome because it is reducing the valuation premium that India has and making the market more attractive for international investors.
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This deal imposes a 15% tariff on Japanese imports and it has been slashed lower from 25%. Come the 1st August deadline, could we see similar reductions with major economies compared to their earlier announced tariffs?
Manishi Raychaudhuri:
The ones to look forward to are ASEAN and India. Now the US has struck deals with Vietnam, with the UK, and with Indonesia, which has a 19% tariff. So among the major economies, it is only the other ASEAN economies like Thailand, Malaysia, and the giant economy India which is still awaiting. If India gets a deal that is similar to Japan's which is 15% or so, that would be a good outcome.
Currently in the interim, India has a 10% tariff deal which is valid till August 1 and even those deadlines are really up in the air because they are constantly changing depending on who you speak to – President Trump or the Treasury Secretary Scott Bessent. But if it is somewhere in around the mid-teens kind of range, that would be a good outcome for India and the best part is we would have left this policy uncertainty behind us because as long as these numbers keep changing, as long as they keep fluctuating, no investment decision can be made. It is basically some degree of certainty about these tariff rules and the policy decisions that is very much essential in the present circumstances.
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