India has the potential to benefit from the US imposing further restrictions on investments in strategic sectors in China, leading to a reduction in exposure for global companies in that country, according to a statement from Moody’s Ratings on Friday.
While protectionist trade policies may increase credit risks for Japanese and Korean automakers, certain sectors in India and parts of Southeast Asia, such as computer and electronic products, and textiles, could see new growth prospects in the US. The pharmaceutical and consumer electronics industries in India are expected to benefit the most from this shift.
Global companies are likely to redirect investments from China to other parts of the Asia Pacific (APAC) region and beyond. Moody’s noted that countries like Asean and India could be attractive due to their openness to foreign investments and increasing manufacturing competitiveness.
Asean, which includes countries like Indonesia, Malaysia, Thailand, and Vietnam, could see increased investment flows as companies look to diversify away from China.
In the pharmaceutical sector, Indian companies that are major suppliers of generic drugs to the US are expected to see new opportunities. With the US potentially reducing its reliance on China for sourcing active pharmaceutical ingredients, Indian pharmaceutical companies could benefit.
Similarly, in the consumer electronics industry, Vietnam and India are poised to benefit as investments move away from China. Companies like Apple Inc, through suppliers like Foxconn and Pegatron, are already expanding their manufacturing operations in India.
The trend of companies adopting a “China+1” strategy, where they maintain a presence in China while also expanding production capacity in another country, is expected to continue. This shift away from China is part of a broader trend that has been ongoing since 2018.
While the extent of the gains from trade and investment diversion remains to be seen, the shifting regional supply chains are likely to present new opportunities for countries like India and others in the APAC region.
