US-China deal: Incentives for US to continue to manufacture in India may diminish; Check key sectors and stocks at risk
As US-China 90-day pause on tariffs is expected to cast a temporary blow on few of the Indian sectors, here is in brief the sectors and stocks that will take a hit in its aftermath.
Overall, while the China-US thaw will lend stability to the world economy with less jitters on the global economic front, nonetheless for India it will be a disadvantageous move. Primarily, what will happen now, as the 2 countries agree to lowering reciprocal tariffs is that Chinese products will again become more competitive.
China plus one strategy loses its dynamics especially from India perspective
China Plus One Strategy - Prospects of this strategy will lose their signifcance especially for India.
What is China plus one strategy?
It is a global supply chain move that is aimed at reducing risk by diversifying both manufacturing as well as sourcing outside of China.
India - a sizable beneficiary in the entire China plus one strategy
China plus one has been quiet advantageous to India due to its lucrative policy as well as improving infra.
How extensive has been the India advantage on China plus one strategy?
India has attracted significant breakthroughs when it comes to sectors like pharma, textile, electronics and auto components.
China plus one advantage strengthened by India initiatives
Production-linked incentives as well as Make in India has added to the advantage that China plus one strategy has reaped for India.
Sectors to see a blow amid US-China temporary trade thaw
Even as the negotiations between the two countries have turned for good on trade terms, it will be negative for Indian sectors such as electronic, auto-ancillaries, textiles, specialty chemical, pharma APIs, IT and large exporters.
FPI inflows into India
FPI inflows into India have been net-net positive for 2.5 months now, but it may come on a backseat amid this latest thaw between the two nations as China would become more enticing for them.
IT and heavyweights may see a larger impact
Due to likely FPI offtake as cost-advantage would now go to China, heavyweights and other IT stocks that are held by FIIs aggresively may see some pressure.
China-US impact seen to be heavy for Dixon Technologies
Vinit Bolinjkar, Head of Research at Ventura says that one company that now finds itself vulnerable is Dixon Technologies — India’s leading contract manufacturer for electronics, from smartphones to televisions.
He adds that for the past few years, Dixon rode the wave of China+1, as global firms sought to diversify away from Chinese manufacturing. Dixon signed deals with marquee names — Samsung, Motorola, Xiaomi — and became a shining star in India's "Make in India" mission.
But now, with the US potentially cozying back up to China under this new strategy, the incentives for American firms to manufacture in India could diminish. If Chinese factories open their gates wider to US firms with tax breaks, regulatory relaxations, and faster logistics, Dixon’s value proposition weakens.
China -US trade truce- to unlikely reverse advantage to India completely
For now, even as the US-China deal may be awful for certain sectors for sometime, the situation is highly unlikely that it would lead to companies completely reversing their diversification plans from India. So, India will continue to gain prominence as a manufacturing hub as drivers like cost and risk are in place.
Analyst on deal's impact over India
Chokkalingam G - Founder - Equinomics Research says, "Overall this could be a negative development for Indian market. Again a tilt towards Chinese stock market by FIIs is possible."