Reciprocal tariff relaxation: dark clouds not fading for Auto and Metal space

The US government has suspended 26% reciprocal tariffs for India till 9^th July’25. However, the base tariff of 10% will continue to be enforced.

However, import tariff of 25% in metals and automotive domain remain in force and not subject to this reciprocal tariff outcoming.

Since the blanket 25% import tariff on automobile (passenger vehicle and LCV) and auto components remains unchanged, this development will have limited benefits flowing to the domestic automotive space, more so on the component side (forging and transmission players) given vehicle exports are minimal from India.
This also does not fade away the dark clouds over Tata Motors overseas luxury arm i.e. JLR which has temporarily stopped shipments (for the month of April 2025) to North America, its largest and highest growth market. However, given US imposed a softer 10% reciprocal tariff on UK goods vs. 26% for India and ~34% for China in its initial executive order, signifying a relatively softer stance for the European country, which makes us believe that UK will be able to negotiate a better deal with US in times to come, in-turn benefitting JLR which has a large manufacturing base in UK.

In these adverse times, we are hopeful on Tata Motors and have recommended BUY with SoTP based target price of ₹ 825/share

We view this development to also have limited benefit to the domestic metal industry, as the 25% tariffs on steel and aluminium remains unchanged. Additionally, the increased tariffs on Chinese goods are expected to adversely affect China’s economic outlook, carrying the risk of potential dumping elsewhere including India, given that China accounts for more than 50% of global metal demand. However, a key positive trigger could be China’s plans for additional economic stimulus to revive its domestic economy, with top Chinese leaders scheduled to meet soon to discuss upon the same.

Additionally, the total India steel imports have declined to ~0.3 million tons in March’25 vs more than 0.4 million tons witnessed in Jan’25 and Feb’25. Consequently, domestic steel prices are up by ~₹5,000/ton from the 4 years low of ~₹47,000/ton and are currently quoting at ~₹52,000/ton, also tracking impending imposition of safeguard duty of 12%. Thus, with gradual recovery in steel prices and benign lower raw material costs, we expect healthy margin recovery for domestic steel players from Q4FY25 onwards.

We reiterate our BUY rating on JSW Steel, with a target price of ₹1,250 (valued at 8.5x FY27E EV/EBITDA). Similarly, we maintain our BUY rating on Jindal Steel & Power, setting a target price of ₹1,150 (valued at 8.25x FY27E EV/EBITDA).