While US President Donald Trump announced the likely imposition of 25 per cent tariffs on imported pharmaceuticals, Kotak Institutional Equities (KIE) analysed the base and worst case scenarios in the event of the tariff hike. “In the backdrop of uncertainties around US tariffs on pharma, our base case is high tariffs (>10 per cent) are unlikely to be levied as those are impractical. However, in the worst-case scenario of high tariffs, companies would be forced to prune their US portfolio (completely exit in some cases) after exhausting other avenues like passing on the higher costs to US customers,” the brokerage firm said.
Sticking to its base case, Kotak Institutional Equities reiterated its positive stance on the sector: Sun Pharmaceuticals, Cipla, Lupin, JB and Emcure are the top picks. Earlier, in a conversation with Nomura, Cipla Managing Director and CEO Umang Vohra had shown confidence in the sector and said that tariffs and regulations in the US will not impact the competitiveness of Indian generics and are a long-term positive for the Indian pharma sector. He had reiterated, “Indian generics industry will remain intact even if the US imposes tariffs.” Nomura has pointed out that the comments are “largely aligned with expectations”.
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Trump had disclosed that a 25 per cent tariff will be implemented on pharmaceuticals in the initial phase and it will surge ‘very substantially over a year’. However, he had not clarified the date when it will come into effect while maintaining that companies will get time to shift their manufacturing to the US.
No grim outcome expected
According to the Ministry of Commerce, India’s exports to the US stood at $8.1 billion as of FY2024 and in contrast, imports from the US to India stood at around $400 million as of FY2024. Currently, there is no import duty levied on Indian drugs supplied to the US even as India imposes 5-10 per cent import duty on pharma imports from the country. Hence, Kotak Institution Equities said, “If tariffs are levied strictly on the principle of reciprocity within pharma, the Indian government will have to navigate an impact of lower customs duties to the tune of less than $50 million,
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