Indian Pharma Stocks Fall Despite Minimal Tariff Impact

Indian generic drug manufacturers have been spared from the impact of U.S. drug tariffs, but investors remain anxious. Despite the U.S. imposing a 100% tariff on imported branded drugs and patented medicines, which is unlikely to affect these companies significantly, major Indian pharmaceutical stocks experienced a decline last Friday. The Indian Pharmaceutical Alliance's official stated that Indian companies primarily export generic drugs to the U.S., so the potential impact would be minimal.

However, shares of major Indian pharmaceutical companies such as Sun Pharmaceutical and Divi’s Laboratories fell by 2.5% and 3.5% respectively, while the industry benchmark index Nifty Pharma Index also dropped by more than 2%. Although investor concerns appear to be unwarranted, the investment director of White Oak Capital Partners noted that global market participants view this as part of a series of events that have occurred over the past few months.

The investment director highlighted the increasing challenges faced by the Indian economy, mentioning the U.S. imposing a 25% tariff on India, followed by an additional 25% tariff, and the increase in H-1B visa fees. Many of these tariffs are not expected to severely harm the Indian economy or erode the profits of Indian companies. However, investors are concerned that tariffs could escalate further before U.S.-India trade relations improve.

Trade tensions between the U.S. and India have been escalating. In August, the U.S. first imposed a 25% tariff on India, which was later increased to 50% due to India's purchase of Russian oil. The sectors most affected by these tariffs include textiles, gems, jewelry, and marine products. However, the impact on the Indian economy, which is primarily driven by private consumption, is limited.

Last week, U.S. President Trump announced a one-time fee of 100,000 dollars for new H-1B visa applications, which could disproportionately affect Indian workers. Experts believe that the series of statements has caused investor anxiety, with many worried about further escalation from Washington. A partner at the risk consulting firm BDO Partners suggested that these continuous actions by the U.S. could be part of a negotiation strategy to expedite a trade agreement with India.

Meanwhile, the investment director of White Oak Capital Partners noted that while India lacks global competitiveness in the textile industry, its products can be replaced by exports from countries like Bangladesh or Vietnam, India does have an advantage in the generic drug sector. The investment director stated that even if the U.S. imposes tariffs on Indian generic drugs, there is no need for excessive concern. Generic drug exporters are competitive and have few substitutes, so a significant portion of the tariffs would be passed on to the end customer.