Trump Tariffs Send Pharma Stocks Rallying, IT Stocks Face the Heat: Here's Why

Trump Tariffs: While higher-than-expected tariff rate of 26% did send jitters across the D-street on April 3, the pharma sector witnessed a sharp uptrend. The Nifty Pharma index surged by over 4.3% or more than 900 points after the US administration announced the exemption of certain goods from 'reciprocal' tariffs.

After the US president officially confirmed tariff rates on trading partners, the White House released a factsheet that some goods, including copper, pharmaceuticals, semiconductors, lumber articles and gold, will not face higher tariff rates. This sent investor confidence on a sharp uptrend as many thought that the pharma sector might bear the brunt of Trump's reciprocal tariff stance.

Major pharma stocks like Zydus Life, Dr Reddy's, Gland Pharma, Sun Pharma and Aurobindo Pharma surged as much as 10% on Thursday.

At 2:00 pm, the shares of Cipla were trading at Rs 1,498.60 price level, up by around 3.18% on the National Stock Exchange. Despite benchmark indices, witnessing pain owing to higher-than-expected tariff rates, the sectoral stocks surged.

"The exemption given to Indian pharmaceuticals is positive and, therefore, this segment is likely to witness buying. Even in a weak market, domestic consumption driven sectors will be regarded as safe havens by investors," said VK Vijayakumar, chief investment strategist, Geojit Investments Limited.

On the other hand, the domestic IT sector witnessed a bearish sentiment as concerns over inflationary pressures weighed down investor confidence.

Why IT stocks are down?

The Nifty IT index crashed by over 1,400 points or 3.9% on April 3. Major sectoral giants like Infosys, TCS and Wipro were down by as much as 4%. Coforge also witnessed a sharp plunge on bourses, as the shares of the IT company declined by nearly 8%.

Analysts already warned that the tariff might bring-in inflationary pressure to global markets. This might impact the discretionary spending of US-based companies, which is a big market for Indian IT firms. "The Nifty IT Index has corrected 20% in the last three months due to concerns over the recession in the US and the tariff war. Investors are catching their breath and evaluating whether the negatives are already priced in," said Sumit Pokharna, VP-fundamental research, Kotak Securities

"Any imposition of retaliatory tariffs on US exports by the US’s trading partners could add to global inflation, which had turned benign. Higher tariffs may result in higher inflation (versus the 2% target of the US Fed) and may impact the FED’s rate cut decision which is not conducive for the IT sector, in general," he added.