Will Trump’s new tariffs spell trouble for Indian pharma stocks?

Indian pharmaceutical stocks nosedived on April 4 after US President Donald Trump hinted at imposing tariffs on pharmaceutical imports, a move that threatens to disrupt the $10 billion export market. The sudden shift in policy, contrary to earlier indications that pharma would be spared, sent investors into a panic, leading to a broad sell-off in the sector.

Trump’s tariff shocker: A policy U-turn

Speaking aboard Air Force One, Trump signalled a fresh approach to trade restrictions, stating that pharmaceuticals would be treated separately under the "Liberation Day" tariff plan. This contradicts the White House’s initial fact sheet, which excluded pharma from the list alongside copper, semiconductors, and lumber. The proposed tariffs, reportedly set at 26 per cent on select Indian imports, now raise concerns over a significant impact on the industry.

Stock market carnage: Pharma stocks plummet

The uncertainty surrounding these potential tariffs triggered a massive selloff in Indian pharmaceutical stocks. Key players witnessed sharp declines:

• Aurobindo Pharma, Laurus Labs, and IPCA Laboratories fell up to 8 per cent.

• Lupin, Biocon, and Cipla experienced significant declines.

• Sun Pharma, Dr. Reddy’s, Marksans Pharma, Gland Pharma, Shilpa Medicare, and Ajanta Pharma faced losses of up to 10 per cent.

The BSE Healthcare index plunged in response, reflecting the sector-wide distress.

US market dependency: A billion-dollar risk

Indian pharmaceutical exports to the US total approximately $10 billion annually, representing 6 per cent of total US pharma imports and 2.5 per cent of the country’s total medicine costs. Until now, analysts believed generic drug exports would remain unaffected due to their critical role in cost savings within the US healthcare system. Generics contribute to over $400 billion in consumer savings annually, making additional tariffs counterproductive.

Implications for Indian drugmakers

The potential tariffs could lead to:

• Higher drug prices in the US.

• Supply chain disruptions and potential shortages.

• Rationalization of low-margin products.

• Increased costs for Indian exporters, impacting profitability.

While some analysts suggest that generic drug manufacturers might pass tariff costs onto US consumers, Jefferies analysts noted that higher input costs are often adjusted into pricing structures under existing contracts.

Analyst projections: How bad could it get?

HDFC Securities predicts that under different tariff scenarios, the EBITDA impact on Indian pharma companies could range between 3-45 per cent by FY27. Companies with high US exposure such as Sun Pharma (32%), Torrent Pharma (10%), Piramal Pharma (41%), Zydus Life Sciences (46%), Gland Pharma (50%), Aurobindo (48%), and Dr. Reddy’s (47%) are at the highest risk.

With Trump’s official announcement expected soon, all eyes are on the White House as investors brace for potential "never seen before" trade barriers that could reshape the future of Indian pharma exports.