To shield against US President Donald Trump’s tariff shock, analysts have been advising investors to focus on stocks of domestic-oriented companies, rather than export-centric ones, to minimise potential losses.
Yet, despite these recommendations, stocks in sectors such as fast-moving consumer goods (FMCG), real estate, and both private- and public-sector banking have remained subdued in August (following the initial tariff imposition on August 7).
However, automotive and consumer durables stocks have defied the broader downturn, buoyed up largely by the government’s promise to reduce the goods and services tax (GST).
This underperformance in many domestic-facing sectors, according to Anirudh Garg, fund manager and partner at INVasset PMS, can be traced to investors adopting a “wait-and-watch” approach, as the tariff announcements — both the initial 25 per cent levy and the subsequent penalty of 25 per cent — coincided with India Inc’s weak earnings expectations for the second quarter of 2025-26.
“Even sectors that are fundamentally insulated, such as automotive, FMCG, and cement, have been caught in the risk-off trade.
"Without visible triggers, like festival demand data or stronger earnings prints, investors remain reluctant to take aggressive positions,” Garg observes.
With the 50 per cent tariff now in place, market experts caution against adding exposure to export-dependent stocks, even after recent corrections.
While, in theory, rotating from export-focused sectors to domestic-oriented companies makes investor sense, such a shift has yet to materialise, they warn.
Investors are advised to remain cautious even with domestic-focused stocks, as “logic has not worked until now”, according to Sandip Agarwal, fund manager at Sowilo Investment Managers, given the ongoing unpredictability in US tariff policy.
“There are multiple pressures at play, including sustained foreign institutional outflows,” Agarwal explains.
“However, over the long term, fundamentals will prevail.”
The new 50 per cent tariffs, effective from August 27, are among the highest in Asia, as tensions between New Delhi and Washington escalate.
Sectors such as apparel, textile, engineering goods, gems and jewellery, shrimp, and carpet are expected to face considerable headwinds, according to an analysis by the Global Trade Research Initiative.
Riding the shift: The domestic playbook
Garg reiterates that investors should continue seeking opportunities in stocks driven by domestic growth, particularly those benefiting from strong policy or structural tailwinds.
“Beyond the defensives, emerging tech firms and healthcare companies represent steady growth stories. A negotiated resolution before year-end could unwind some market overhang.
"Hence, a temporary correction is an ideal time to build positions with a three-year horizon,” he adds.
As the GST 2.0 rationalisation leads to higher discretionary spending and the festival season demand kicks in, analysts predict a potential rerating of stocks in domestic-focused sectors.
“Near-term inertia is more about sentiment than underlying structural weakness,” Garg remarks.
While export-oriented stocks have faced sizeable corrections and offer upside potential, Agarwal warns that prolonged uncertainty could have long-lasting effects on industries employing millions, particularly textile.
“I wouldn’t commit new capital to export-heavy or US-exposed stocks right now. I’d focus on companies without those risks,” Agarwal adds.
While textile sector earnings may be impacted by heavy US exposure, analysts at Antique Stock Broking suggest that other sectors, like information technology services, pharmaceutical, chemicals, electronics manufacturing services, and certain metal firms, despite substantial US revenue, will likely face limited impact due to product exemptions or operations through US subsidiaries.
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