Indian Pharma Stocks Future Amid US Tariff Worries

Indian Pharma Stocks Future Amid US Tariff Worries

Indian pharmaceutical stocks took a major hit on Friday after US President Donald Trump hinted at potential import tariffs on medicines. This unexpected announcement shook investor confidence, especially after a recent wave of optimism that the sector would be exempt from new trade barriers. During a conversation, President Trump mentioned that pharmaceuticals would not be spared but be treated differently when it comes to tariffs. This caught many off guard, as earlier government documents had excluded medicines from the list—alongside items like copper, semiconductors, and lumber. The proposed tariff plan, called “Liberation Day,” includes a 26% reciprocal duty on selected Indian imports. The US claims this is half of what American companies face in India. The reaction in the stock market was swift and sharp. Shares of major pharma companies like Aurobindo Pharma, Laurus Labs, and IPCA Labs dropped by up to 8%. Heavyweights such as Lupin, Biocon, and Cipla also saw steep declines. Other companies like Marksans Pharma, Dr. Reddy’s, Shilpa Medicare, Sun Pharma, Gland Pharma, Ajanta Pharma, and Wockhardt were also in the red—some plunging nearly 10%. The broader BSE healthcare index also traded significantly lower. This market response shows how heavily Indian pharma relies on the US. India exports around $10 billion worth of medicines to America each year, accounting for 6% of total US pharmaceutical imports and 2.5% of the country’s overall medicine expenditure. Before Trump’s statement, the belief was that generic drug exports from India—known for being affordable—would be spared, since taxing them would likely push up healthcare costs in the US. Indian generics are a crucial part of the American healthcare system, helping it save billions every year. Experts at Nuvama Institutional Equities have warned that imposing tariffs would go against the goal of reducing medical expenses in the US. If the tariffs go into effect, they could lead to a rise in prices of generic drugs, possible shortages, and disruptions to existing supply chains. Some low-profit medicines may even be pulled out of the market. Still, not everyone believes the impact will be devastating. Analysts suggest that generic drugmakers, unlike companies focused on new patented drugs, have some flexibility. Since generics already operate on tight margins, producers may pass the extra costs to US buyers, especially when contracts allow for price adjustments due to rising input costs. Jefferies, in its discussions with pharma firms, found that many companies intend to pass on most of the added costs to customers. Several major players also confirmed they would likely follow this approach. HDFC Securities analyzed the potential outcomes under different scenarios. If Indian pharma companies had to absorb the full impact of a 100% tariff, their profitability (measured by EBITDA) could drop by 3% to 45% by FY27. Even if only half of the tariff costs were absorbed, the financial blow could still be quite severe. Companies with significant exposure to the US market—such as Sun Pharma (32% of revenue from the US), Torrent Pharma (10%), Piramal Pharma (41%), Zydus Life (46%), Gland Pharma (50%), Aurobindo (48%), and Dr. Reddy’s (47%)—are now under the microscope. Market watchers are eagerly awaiting further announcements to understand how exactly these new tariffs will be rolled out and what their long-term impact might be.