US-China Trade Pact Dampens ‘China+1’ Narrative as Shares of Key Indian Stocks Fall

US-China Agreement Pushes ‘China + 1’ Stocks Off Highs

Shares of Indian companies benefiting from the ‘China + 1’ narrative, which was based on the expectation of global businesses diversifying manufacturing away from China, experienced a sharp pullback on May 12. This followed the announcement that the United States and China reached a trade agreement, resulting in a reduction of tariffs on each other’s goods for a 90-day period.

Key stocks that had previously surged, such as Dixon Technologies, Welspun Living, and SRF, lost momentum and fell by 2-4% from their intraday highs. The global trade deal, which sees the US cutting tariffs on Chinese goods from 145% to 30% while China lowers its tariff on US goods from 125% to 10%, led to a retreat in share prices of these companies, which had been positioned to benefit from supply chain diversification away from China.

Highlights:

• Dixon Technologies, SRF, and Welspun Living saw sharp pullbacks after US-China trade pact announcement

• Shares fell between 2-4% from intraday highs

• Trade deal sees US tariffs reduced on Chinese goods, with China lowering duties on US imports

Impact of US-China Trade Pact on Global Manufacturing Shifts

The ‘China + 1’ narrative, which has been a key theme for investors eyeing India as a manufacturing hub, was premised on the idea that global companies would shift production out of China to alternative Asian countries, including India, due to ongoing trade tensions and tariff impositions between the US and China. India was seen as a major beneficiary of this supply chain realignment, as firms sought to mitigate the risks associated with US tariffs on Chinese products.

The trade pact, which also provides for a 90-day tariff reduction between the two countries, has now created some uncertainty. With both China and the US agreeing to retain their bilateral trade relationship, companies previously planning to diversify away from China may opt to stay in the country due to a less volatile tariff landscape.

Highlights:

• ‘China + 1’ narrative previously favored India, but the trade deal between the US and China has brought uncertainty

• Indian companies like Dixon Technologies, SRF, and Welspun Living were beneficiaries of this narrative

• US-China trade deal reduces tariff uncertainties, potentially discouraging further diversification away from China

Global Investors and India’s Market Outlook Amid Trade Deal

Despite the pullback in specific stocks tied to the China+1 theme, experts believe that the broader global investment outlook remains favorable for India. According to Samir Arora, founder of Helios Capital, while the US-China trade agreement is positive for the global economy, it might be slightly disappointing for India. Indian investors were hoping for a more favorable trade agreement between the US and India that could have accelerated the relocation of supply chains and foreign investment into India.

Arora emphasized that, while the tariff reduction benefits the global economy, India remains a strong investment destination. The diversification of investment away from the US should continue to favor Indian markets, as foreign investment flows into the country are likely to remain robust, especially considering India’s economic growth prospects and the ongoing domestic investment surge.

Highlights:

• Arora sees India as a strong investment destination, with foreign flows expected to stay strong

• Despite the US-China deal, diversification out of the US should favor Indian markets

• India might see mixed reactions from investors due to the US-China trade development

Mixed Sentiments: India’s Position in Global Trade Landscape Post-Deal

Indian strategists also expressed mixed sentiments about the US-China trade deal’s impact on India’s position in the global manufacturing and trade landscape. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that while the trade deal is positive for global economic stability, it is less favorable for India, as it removes the significant uncertainty regarding US tariffs on Chinese goods that had previously led to supply chain shifts to India.

India’s manufacturing sector was hoping to leverage the global trade tensions to attract more investment, but the recent US-China détente means that these shifts may slow down as businesses may reconsider their strategies, now that the immediate tariff risks have been mitigated.

Highlights:

• Experts view US-China deal as positive for global economy but disappointing for India

• Indian manufacturing sector may see slower shifts away from China

• Trade deal alleviates tariff risks but reduces India’s appeal for supply chain diversification