T-Rx: Indian pharma majors breathe easy as US spares sector from reciprocal tariffs

Large Indian drug makers, some of which get as much as half their revenue from the US market, were relieved as President Donald Trump spared the sector from reciprocal tariffs.

The market was expecting a 10% tariff on pharma imports from India. Even if half of that was passed on to patients or absorbed by insurers, still large Indian pharma companies would have faced a 3-5% impact on their earnings in fiscal 2027, according to sector analysts and industry experts.

Shares of large generic drug makers and contract manufacturing organisations such as Dr Reddy’s, Zydus Lifesciences, Lupin, Gland Pharma, Biocon, Sun Pharma and Cipla, which have been under pressure on expectations of US tariffs, rose Thursday.

The tariff exemption though comes with a rider – under Section 232, tariffs could be imposed at any point in future – but analysts see only remote possibilities for such a move given it could potentially lead to drug shortages and a price rise in the US.

“The tariff exemption for the pharmaceutical sector is positive for all large-cap Indian pharma companies that have significant US sales presence given that the base case expectation was 10% tariff,” said IIFL analyst Rahul Jeewani. “The move is largely on account of the intense lobbying by large pharma innovators (Eli Lilly, Pfizer, Novo Nordisk, etc.) some of whom have promised billions of dollars investment in opening of factories in the US,” he added.

India is a major supplier of generic medicines to the US market. India exports about $9 billion worth of formulation in value terms to the US, but accounts for 40% of the medicines consumed in that market. In comparison, the European Union has just a single-digit percentage of the market, exporting $140-150 billion of drugs.

“It comes as a positive for the sector given that it has already seen stock price impact in anticipation of the levy since December,” PhillipCapital pharma analyst Surya Patra said.

The BSE Healthcare Index ended 2% up Thursday; it was down 7.5% in first three months of 2025. Dr Reddy’s, Zydus Lifesciences, Lupin, Gland Pharma, Biocon, Sun Pharma and Cipla together have a 33% weight in BSE Healthcare Index.

India’s strategic position
Indian pharma companies, especially generic drug suppliers, are key to ensuring access to affordable medicines for patients in the US. So, experts say the likelihood of a future tariff remains remote as it could lead to many negative repercussions for the US.

“My sense is future tariff is unlikely. If they impose tariffs at a later point too, they may have to roll it back as it could lead to drug shortages in certain critical areas such as antibiotics,” said Anshul Gupta, managing director and head of healthcare investment banking at Avendus Capital. “It could also lead to cost increases that may eventually have to be passed to the consumer or absorbed by the insurance companies.”