Tariff Turmoil: US Economic Sectors Facing Ripple Effects

Jefferies reports that tariff uncertainties will heavily affect manufacturing, logistics, and retail due to their global supply chain dependencies. Information Technology may also struggle with growth, impacting GDP. Competitive pricing, subcontracting, and currency fluctuations could challenge IT profit margins, signaling a flat outlook for most firms by FY26-27.

According to a recent Jefferies report, the unpredictable nature of US tariffs is set to have significant repercussions on sectors relying heavily on global supply chains, particularly manufacturing, logistics, and retail. These industries are bracing for disruptions due to their international dependencies.

The report suggests that in the face of potential US recession indicators, interest rate cuts could further strain the banking, financial services (BFS) sector. Conversely, communications, insurance, and healthcare sectors are expected to endure the tariff impacts better.

The landscape for US-based Information and Technology companies also appears bleak, with adverse effects predicted on GDP growth and multinational corporations that are clients of Indian IT firms. The uncertainty may deter new deals and discretionary IT spending.

Information Technology companies might face challenges in expanding their profit margins, given weaker demand. The report identifies four contributing factors: increased commonality of cost-saving contracts with lower initial margins, intensified competition leading to pricing pressures, reliance on subcontractors to manage costs, and unfavorable currency movements.

Furthermore, the possible depreciation of the US dollar against the Indian rupee could impact margins, prompting a reduction in margin estimates for FY26-27 by up to 100 basis points. Overall, except for TCS and Tech Mahindra, profit margins for most firms are projected to remain static at FY25 levels, according to Jefferies. (ANI)

(With inputs from agencies.)