Could Musk make things worse for India?

This report is from this week’s CNBC ‘Inside India’ newsletter, delivering timely and insightful market news and commentary on the emerging powerhouse and the big companies behind its meteoric rise. Do you like what you see? You can subscribe here.

Recent rumors from Washington suggest that the tariffs are unlikely to be broad. Scott Bessent, hedge fund billionaire and Trump’s pick for Treasury Secretary, is also expected to explain his vision for US trade policy during his speech today. Senate confirmation hearing This reinforces the idea of ​​specific duties.

However, it is another billionaire – Elon Musk – who will likely have enormous influence on US trade policy with China, which could be detrimental to India’s economic growth.

Musk, as head of teslaIt has huge economic exposure to China through the automaker and will want trade policy between the two superpowers to be resolved as soon as possible rather than letting tensions rise.

There is also the possibility that the Chinese government views Musk as an operator who could help ease tensions between Beijing and Washington. China is reportedly now considering a plan that would Musk, who also owns social media platform X, acquires TikTok’s US operations. to prevent the application from being effectively banned. TikTok has denied the reports and says it will not sell its US operation.

While Musk is not the only one with business interests in China, he is among the future president’s inner circle of close advisors and could play a crucial role in a US-China trade deal.

“It would certainly be a negative outcome for India if the United States negotiated a deal with China,” said Gaurav Narain, a portfolio manager at the London-listed exchange. India Capital Growth Fund. “Companies are clearly exploring alternatives to China, which presents a significant opportunity for India.”

“However, if a deal were to be reached, the urgency of finding an alternative would disappear as China remains more cost-competitive and has a complete supply chain,” Narain added.

The Tesla boss has also previously been public about his complaint about India’s “by far the world’s highest” tariffs on car imports. Far from supporting India, Musk, who now has Trump’s attention, could reignite trade tensions between India and the United States over India’s import duties.

In an attempt to woo Musk and also partly divert attention from its own tariff policy, the Indian government temporarily reduced import duties on electric vehicles to 15% in 2024, after keeping them at 100% for several decades.

However, economists suggest that Trump has surrounded himself with enough China hawks that even when a trade deal is reached, it will only lead to companies delaying their exit from China, rather than stopping it entirely.

“I think it may be that the case for that investment coming (to India) slows down because companies look at it and think, ‘Oh, we’ve got another four years,'” said Michael Langham, an Indian economist at asset manager abrdn. . “I don’t see companies thinking so short-term that they don’t plan ahead for what is a longer-term trend, which is the diversification of supply chains.”

Others also suggest that, apart from the trade tariffs imposed by Trump during his first administration, the Covid-19 pandemic has also contributed to the corporate strategy of moving away from China.

“I think the reasons why companies are relocating their supply chain are much deeper and therefore are likely to continue,” Sonal Varma, chief India economist at Nomura, told CNBC in an interview late of December. “I think the trade imbalance between the United States and China is a small part of what is actually a bigger problem,” Verma added.

There’s also evidence that Musk didn’t always get his way with Trump either.

The Tesla boss endorsed Howard Lutnick, CEO of investment bank Cantor Fitzgerald, as a candidate for Treasury secretary. However, Trump chose billionaire hedge fund manager Bessent to head the US government’s finance department.

Slowing inflation in India. India’s inflation in December was 5.22% year-on-yearaccording to the Ministry of Statistics and Program Implementation. The reading is lower than the 5.30% predicted by a Reuters poll of analysts, and the second consecutive month of slowing inflation. Softer inflation reading offers RBI room to cut rates, amid a slowdown in growth in the country.

China may be delaying exports to India. Shri S. Krishnan, secretary of the country’s Ministry of Electronics and Information Technology, said on Tuesday that the government has received feedback from industrial companies, such as Foxconn, that capital goods were detained in China’s ports for several months. China has not announced any formal restrictions, but the measure could be led informally by Beijing, Krishnan said.

The Indian government sees no problems with the currency or oil supply. The Indian rupee has been depreciating against the US dollar this week, but the government has enough foreign exchange reserves to stop any excessive currency movementsources within the government said. The government is also confident that India will not experience any shortage or increase in oil prices after the United States imposed new sanctions on Russian oilof which India is one of the main buyers.

Use options to earn profits from India. The Indian economy is currently experiencing a slowdown. But its growth aspects, according to United Nations forecasts, remain strong relative to other global markets. One of the best ways to playing in the Indian market can have optionsaccording to a chief strategist at an investment firm. (For subscribers only)

Indian stocks seem to be recovering from their horrible start to the year. He ingenious 50 The index is down 0.5% so far this week, but has continued an upward trend in recent days. The index is down 1.41% this year.

The yield on India’s benchmark 10-year government bonds briefly spiked by 10 basis points over the past week, but fell as low as 6.75% on Thursday.

This week on CNBC TV, Neelkanth Mishra, chief economist at Axis Bank, said the Indian rupee is facing the problem of being “overly stable.” During the last two years, the rupee volatility was more limited than that of other global currencies, Mishra said. This is because the Reserve Bank of India had a policy of stabilizing the currency, and could maintain that stance “for much longer than necessary,” according to Mishra.

Meanwhile, Sumeet Jain, senior research analyst at CLSA, told CNBC that valuations of Indian IT sector names are “on the rise in the last two years despite earnings downgrades.” Despite that, Jain is “cautiously optimistic“about the sector because India’s macroeconomic conditions are on an upward trend.