Tariff distress may come, but so will deals

Hello,

This week, it was rumoured that due diligence on the IDBI divestment is nearly complete, while SEBI approved LIC’s reclassification as a public shareholder – two developments that could reshape shareholder governance.

Meanwhile, Reliance and Disney India secured antitrust clearance for their $8.5 billion merger, a consolidation likely to lead to wider ramifications for media distribution, streaming economics and content monetisation.

And finally, Maruti Suzuki began production of its first EV after committing $8 billion to India. This matters because the company’s legacy cost-engineering and mass-market credibility will unlock popular demand for affordable EVs, forcing competitors to rethink pricing, and accelerate regulators’ efforts to standardise green mobility infrastructure. 

I hope you enjoy this week’s roundup — please connect on LinkedIn to discuss your next M&A deal.

Let’s dive in.

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Autumn is coming for globalisation

An AP photographer lingers on an elderly shoemaker under white-hot factory lights as he pauses between pairs of finished cowgirl boots. It’s an image from India’s leather factories, clusters that sustain tens of thousands of artisans and micro-manufacturers, now thrust onto the frontline of a global trade shock, as India’s PM Modi warned the world was witnessing “a politics of economic selfishness.”

He may be right.

The United States’ new 50% tariff on Indian leather and footwear exports means it’s one of many industries threatened with cancelled orders, stranded inventories and the sort of cash-flow squeezes that sink small firms.

The craft in that photograph is more than symbolic: the sector is labour-intensive, deeply tied into local supply chains from Chennai to Kanpur, and integral to export clusters that support livelihoods across the country.

The squeeze and the riposte

It’s not just makers of shoes and saddles that will be impacted. Those in apparel and textiles, gems and jewellery, seafood, and auto components all face heavier duties. Estimates suggest 55-66% of US-bound merchandise could be affected, with potential shipment drops of 40% or more in the most vulnerable labour-intensive lines. 

The macro hit could be a drag of  up to 1% on India’s GDP and disruption to millions of export-linked jobs.

Source: Ministry of Commerce and Industry 

Yet trade rarely vanishes – it reroutes. And businesses are only as strong as the shocks they survive. 

China is on the way to becoming the world’s largest luxury market. Those boots may yet find a home in Shanghai or Beijing rather than Texas, or Indian diamonds on a wrist in Chengdu – a reminder that while globalisation’s neat script may be fraying, commerce adapts.

But understandably, policymakers are scrambling. 

Special credit lines are being rolled out to exporters; cotton import duties have been waived; and targeted government-backed outreach is underway in Europe, Southeast Asia and Africa. And as always, RBI is monitoring inflation. 

But mitigants have limits – certifications, logistics and buyer approvals take time. Many small suppliers cannot pivot overnight, making distress both likely and investable.

Ratings, resilience and risk pockets

Amid the tariff shock was one beacon of hope last fortnight: S&P had upgraded India’s sovereign rating to BBB, the first step up in 18 years, citing resilient growth and structural reforms. Fitch, however, held its BBB- pointing to India’s elevated debt:GDP ratio at 80%, fiscal risks, and slowing growth. 

Together, the two ratings illustrate India’s balancing act: structural optimism flanked by fiscal caution.

However, S&P also warned that tariffs across APAC wouldn’t spread pain evenly but create pockets of greater risk. While only a minority of corporates face severe exposure they are clustered in sectors like auto, textiles, chemicals, steel, and other labour-intensive manufacturing. 

For lenders, that translates into rising NPAs in export-heavy regions. For dealmakers, it means distressed SMEs may soon become takeover targets. PEs and corporates can acquire scale or supply-chain footholds cheaply if they are willing to restructure and re-route markets. 

Cross-border buyers pursuing China+1 diversification may view this turbulence as their entry point into India.

A tactical window as doors close

In addition to all those difficulties, the indirect effect of competitor supply flooding India’s markets may just turn out harsher than the tariff hit.

Right now, the challenge for India’s policymakers, lenders and investors is to turn adversity into opportunity. Distress is coming but so will deals. And in that churn lies India’s future.

It could be time for those boots to walk new trade corridors.