Tariff War Safe Haven—India?
2min read As the US-China trade war intensifies following Donald Trump's tariff shock, global investors are increasingly turning their attention to Indian assets as a relative safe haven.
Since the tariff shockwave began on April 2, the msci India stock index has fallen by less than 3%, about half the decline seen in other Asian markets. Indian bonds, meanwhile, have risen against the trend.
The market broadly believes that India's large domestic economy makes it more resilient to a global economic slowdown than many other countries. In stark contrast to Beijing's retaliatory measures, New Delhi has adopted a conciliatory approach. As U.S.-China trade tensions escalate, India also stands to benefit from the shifting global supply chains.
"India is looking at a bullish phase during this trade war, as the economy is a domestic-facing consumption story," said Sumeet Rohra, a fund manager at Smartsun Capital Pte. "We are buying the dip as markets will soon build a bottom, and double-digit earnings should kick in from this year."
The trade war has cast a spotlight on India as an alternative manufacturing hub to China. On Tuesday, India's Ministry of Technology reported that smartphone shipments surged 54% in the fiscal year ending March 2025, with apple inc. alone exporting over $17.4 billion worth of iPhones from the country during this period.
"India's non-retaliatory stance and active negotiation approach has placed it on stronger footing, not only in terms of tariffs but also the possibility of a multi-year manufacturing opportunity," said Sneha Tulsyan, an investment analyst at Tokio Marine Asset Management International Pte. in Singapore.
Given India's relatively low exposure to the U.S., the direct impact of tariffs is expected to be minimal. Bloomberg-compiled data shows that last year India accounted for only 2.7% of total U.S. imports, compared to 14% from China and 15% from Mexico.
Bloomberg Economics estimates that India's GDP for the 2026 fiscal year will be lowered by 0.3 to 0.4 percentage points due to short-term export shocks, trimming growth from 7.2% to around 6.9%. However, with expectations for a trade agreement with the U.S., the medium-term impact is expected to be limited.
"India should emerge as a relative outperformer" due to its lower dependence on the U.S. and China, relatively lower tariffs, oil prices, favorable foreign investor positioning, and a pro-growth central bank, wrote Jefferies Financial Group Inc. strategist Mahesh Nandurkar in an April 9 note. On Thursday, the firm upgraded India to "overweight" in its recommended Asia ex-Japan portfolio allocation.
Another tailwind for Indian equities comes from strong local investor support, which has helped offset global investors' sell-offs. Indian domestic institutions have invested approximately $25 billion so far this year. At the same time, the Reserve Bank of India has continued cutting interest rates and injecting liquidity into the market, significantly lowering bond yields. This will help the Indian government reduce borrowing costs and provide more funding for infrastructure development.
"Even with the trade war-related uncertainty, the Indian economy can grow by more than 6%, given that the RBI has decisively now started to support the economy," said Vivek Bhutoria, a fund manager at federated hermes in London, noting that he has increased his exposure to the Indian market.