US-China Trade Deal: What It Means For India’s IT, Metal, And Pharma Stocks

United States and China have temporarily agreed to reduce tariffs on each others’ goods and services for an initial 90-day period. This de-escalation in the US-China trade war has calmed investors’ nerves, as can be seen in the rally this development triggered in Asian stock markets.

China’s benchmark index the Shanghai Stock Exchange Composite (SSE Composite) Index surged 0.8 per cent, the SZSE Component index, which comprises 500 stocks that are traded at the Shenzhen Stock Exchange, rallied over 1.7 per cent, and the widely-tracked Hong Kong-based Hang Seng index, where the majority of Chinese companies are listed, rallied nearly 3 per cent in May 12’s trade.

Japan’s Topix and Nikkei 225 indices also rallied over 0.3 per cent each, and South Korea’s KOSPI index surged nearly 1.2 per cent.

Meanwhile, India’s Sensex and Nifty 50 too rallied between 3.5 per cent to 4 per cent.

The US-China Trade Deal's Impact On India

According to the joint statement by both the countries, this agreement will reduce the combined 145 per cent US import duties on Chinese products to 30 per cent, and the 125 per cent Chinese duties on US products to 10 per cent.

While this will undeniably augur well for both the economies, some of India’s sectors too are likely to see its impact, in both positive and negative ways.

IT Sector: On May 12, the Nifty IT index rallied 6.7 per cent to emerge as the top sectoral gainer. The index was led by the US-based Oracle group’s India unit Oracle Financial Services Software, which rallied 8.9 per cent in today’s trade. It was followed by the index heavyweight Infosys, which surged 7.7 per cent. Following them, Coforge, Persistent Systems, and LTIMindtree gained between 6 per cent to 7.5 per cent.

The de-escalation of US-China trade war has eased concerns about reduced tech spending by the US government. Earlier, India’s IT stocks had come under pressure amid fears that the trade tensions would fuel inflation and hurt technology budgets. A majority of India’s IT services companies derive revenues from the US.

Pharma Sector: The tariff cuts between China and the US is a negative for India’s pharma sector. The US imports a large part of pharmaceuticals from China and India. India currently imposes a 10 per cent tariff on pharmaceutical imports from the US. The US, on the other hand, does not impose any tariff on pharmaceutical imports from India. Reduced tariffs on Chinese pharmaceuticals are thus a negative for Indian drugmakers. Consequently, Nifty Pharma remained the least sectoral gainer on D-Street in today’s trade. Initially slumping over 2.3 per cent in early trade, Nifty Pharma made some recovery during the later half of the session to close with a meagre 0.15 per cent gains.

Metal Sector: A full-blown trade war had earlier raised worries about a potential slowdown in the global economy. Concerns were that, this economic slowdown could have weighed heavily on metal demand. Since these concerns have eased, it triggered a rally in metal stocks. The Nifty Metal index rallied 5.86 per cent in today’s trade, led by gains in Steel Authority of India (SAIL), Adani Enterprises, and National Aluminum Company (NALCO).