Could Musk make it worse for India?

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

Recent whispers from Washington suggest the tariffs are unlikely to be broad. Scott Bessent, hedge fund billionaire and Trump’s choice for Secretary of the Treasury is also expected to outline his vision for US trade policy today during his day. Senate confirmation hearing which reinforces the idea of ​​targeted functions.

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

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

There is also the possibility that the Chinese government sees Musk as an operator who could help ease tensions between Beijing and Washington. China is now considering a plan that would Musk, who also owns the social networking platform X, is acquiring the American operations of TikTok to keep the app from being effectively banned. TikTok has denied the reports and says it will not sell its US operation.

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

“It would undoubtedly be a negative outcome for India if the US broker signed a deal with China,” said London-listed portfolio manager Gaurav Narain. 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 negotiated, the urgency to find an alternative would disappear as China remains more cost competitive and boasts a complete supply chain,” Narain added.

The Tesla boss has also been published earlier on his complaint with India’s “highest in the world by far” tariffs on auto imports. Far from supporting India, Musk, now having Trump’s ear, could reignite trade tensions between India and the US over India’s import duties.

In an attempt to unsettle Musk and also partially divert attention from its own tariff policy, the Indian government has temporarily reduced import duties for electric vehicles to 15% in 2024, after keeping it 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 transition out of China, rather than stopping altogether.

“I think it may just be that the case for that investment comes [into India] It’s slowing down because companies are looking at it and thinking, ‘Oh, we’ve got another four years,'” said Michael Langham, India economist at asset manager abrdn. “I don’t see companies that think so in the short term for not planning ahead. what is a long-term trend, and that 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 moving their supply chain are much deeper and therefore are likely to continue,” Sonal Varma, India’s chief economist for Nomura told CNBC in a interview at the end of December. “The trade imbalance between the United States and China, I think is a small part, actually what is a bigger problem,” Verma added.

There is also evidence that Musk does not always have his way with Trump.

The head of Tesla supported Howard Lutnick, the general manager of the investment bank Cantor Fitzgerald, as a choice for the Secretary of the Treasury. Yet Trump instead chose billionaire hedge fund manager Bessent to lead the US government’s finance department.

Slow down inflation in India. India’s inflation in December is up 5.22% year on yearaccording to the Ministry of Statistics and Program Implementation. The reading is lower than the forecast of 5.30% by a poll of Reuters analysts, and the second consecutive month of slowing inflation. The softer inflation reading offers room for the RBI to cut rates, amid slowing growth in the country.

China may delay exports to India. Shri S. Krishnan, the country secretary of the Ministry of Electronics and Information Technology said on Tuesday that the government has received feedback from industry companies, such as Foxconn, which The capital ships were held in the ports of China for several months. China has not announced any formal restrictions, but the move could be informally directed by Beijing, Krishnan said.

The Indian government sees no problems with currencies or oil supplies. The Indian rupee has depreciated against the US dollar this week, but the government has enough currency reserves spread out any excessive currency movessources in the government said. The government is also confident that India will not experience any shortages or price spikes in oil after the US tax new sanctions on Russian oilof which India is one of the main buyers.

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Indian stocks seem to be recovering from their horrible start to the year. U Nifty 50 The index is down by 0.5% so far this week, but has been in the uptrend in recent days. The index is down 1.41% this year.

The yield on India’s benchmark 10-year government bond rose briefly by 10 basis points over the past week, but fell to 6.75% on Thursday.

On CNBC TV this week, Neelkanth Mishra, chief economist at Axis Bank, said that the Indian rupee is facing a problem of being “unduly stable”. In the last two years, the the volatility of the rupee was more limited than that of other global currencies, Mishra said. That’s because the Reserve Bank of India has had a policy of stabilizing the currency – and it could maintain this stance “for much longer than perhaps necessary,” according to Mishra.

Meanwhile, Sumeet Jain, senior research analyst at CLSA, told CNBC that valuations for Indian IT sector names are “on a tear over the past two years despite earnings downgrades.” Despite this, Jain is “cautiously optimistic“Regarding the sector because the macroeconomic conditions of India are on an upward trend.