Could Musk make it worse for India?

This report is taken from CNBC's 'Inside India' newsletter this week that brings you insightful and timely news and market commentary on the emerging powerhouse and the big companies behind their meteoric rise. Like what you see? You can subscribe here.

Recent whispers from Washington suggest that the tariffs are unlikely to be broad. Scott Besent, the hedge fund billionaire and Trump's pick for Treasury secretary, is also expected to outline his vision for US trade policy today during his term. Senate confirmation hearing Which reinforces the idea of ​​targeted duties.

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

Musk, as president TeslaIt has huge economic exposure to China through the carmaker and wants to settle trade policy between the two superpowers as soon as possible rather than allowing tensions to escalate.

There is also the possibility that the Chinese government will view Musk as an agent who can help ease tensions between Beijing and Washington. China is now said to be considering a plan that would do just that Musk, who also owns social media platform X, is acquiring TikTok's US operations To effectively prevent the application from being blocked. TikTok denied these reports and said it would not sell its US operations.

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 will undoubtedly be a negative outcome for India if the US brokers a deal with China,” said Gaurav Narain, portfolio manager at LSE-listed company. Indian Capital Growth Fund. “Companies are clearly exploring alternatives to China, which represents a huge opportunity for India.”

“However, if an agreement is reached, the urgent need to find an alternative will disappear as China remains more cost competitive and boasts a complete supply chain,” Narain added.

The Tesla CEO had also previously expressed his complaints about the “world's highest ever” tariffs imposed by India on car imports. Beyond Musk's support for India, Musk, who now has Trump's ear, could reignite trade tensions between India and the US over Indian import duties.

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

However, economists point out that Trump has surrounded himself with enough China hawks that even when a trade deal is reached, it will only delay companies moving out of China, rather than stopping it entirely.

“I think the state of investment coming in (to India) is probably slowing down because companies are looking at it and saying: ‘Oh, we have another four years,’” said Michael Langham, India economist at Aberdeen Asset Management. . “I don't see companies thinking so short-term that they're not planning ahead for the long-term trend, which is diversification of supply chains.”

Others also point out that apart from the trade tariffs imposed by Trump during his first administration, the Covid-19 pandemic has also contributed to the company's strategy of distancing itself from China.

“I think the reasons for companies to move their supply chain are much deeper, and therefore likely to continue,” Sonal Varma, chief economist at Nomura India, said in an interview with CNBC in late December. “I think the trade imbalance between the US and China is actually a small part of a larger issue,” Verma added.

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

Tesla Chairman Howard Lutnick has backed investment bank CEO Cantor Fitzgerald as a choice for Treasury Secretary. However, Trump instead chose billionaire hedge fund manager Bescent to lead the US government's financial department.

Inflation slowdown in India India's inflation rate in December reached 5.22% on an annual basisAccording to the Ministry of Statistics and Program Implementation. This reading is lower than analysts’ expectations in a Reuters poll of 5.30%, and the second month in a row of slowing inflation. A weaker inflation reading gives room for the Reserve Bank of India to cut interest rates, Amid slow growth in the country.

China may delay exports to India. Krishnan, secretary of the country's Ministry of Electronics and Information Technology, said on Tuesday that the government had received comments from industry companies, such as Foxconn, that Capital equipment was detained in ports in China For several months. Krishnan said China has not announced any official restrictions, but the move may be unofficially directed by Beijing.

The Indian government does not see a problem with currency or oil supplies. The Indian rupee depreciated against the US dollar this week, but the government has enough foreign exchange reserves Stop any excessive currency movementsSources within the government said. The government is also confident that India will not face any shortage or rise in oil prices after the US imposition New sanctions on Russian oilOf which India is one of the largest buyers.

Using Options to Earn Returns from India. The Indian economy is currently witnessing a slowdown. But its growth aspects, according to United Nations forecasts, are still strong compared to other global markets. One of the best ways to Playing the India market may be with optionsaccording to the chief strategist at an investment company. (For subscribers only)

Indian stocks appear to be recovering from their horrific start to the year. the Classy 50's The index is down 0.5% so far this week but has been on an upward trend over the past few days. The index fell by 1.41% this year.

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

The Indian rupee faces a problem of “undue stability,” Neelkanth Mishra, chief economist at Axis Bank, said on CNBC this week. Over the past two years, Rupee volatility was more restrained Other global currencies, Mishra said. This is because the Reserve Bank of India has had a policy aimed at stabilizing the currency — and may maintain that position “for a much longer period than may be necessary,” according to Mishra.

Meanwhile, Sumit Jain, senior research analyst at CLSA, told CNBC that valuations for Indian IT sector names “have been on a tear in the last two years despite earnings cuts.” However, JaneCautiously optimistic“On this sector because the macroeconomic conditions in India are on an upward trend.