Investing in a Fractured World: Navigating Geopolitical Risk and Tariff Wars

In 2025 the arc of India-US trade  has entered a phase of recalibration. Proposed U.S. tariffs have reached levels that materially alter competitiveness in most sectors. India responded with policy shifts of its own, including moves to ease certain digital levies in an attempt to reduce friction. These episodes make a simple point: trade terms no longer feel permanent. Trade policy is now a recurring variable that investors must measure and manage.

This change matters for capital allocation. Tariffs raise the cost of export-led strategies and tilt comparative advantage. They change profit margins, reorder supplier networks, and rewrite the calculus of market entry. For an investor in India, the task is not to predict every policy move. It is to recognise the contours of a world where policy choices matter as much as consumer demand. 

A few hard facts stand out. One, the recent tariff measures have been large enough to threaten competitiveness for industries that sell into the U.S. market. Firms with tight unit economics will feel this first. Two, ratings agencies and macro analysts are flagging possible growth headwinds if tariffs persist, with warnings that manufacturing ambitions could be slowed by rising trade barriers. Three, policymakers on both sides are mindful that trade tools can be instruments of strategy as well as commerce, becoming the basis for deliberate portfolio shifts.

The broad research on geopolitical risk confirms the mechanism. Geopolitical shocks can reduce trade openness, raise risk premia, and alter the transmission of shocks through finance. 

What this means for investors 

For investors this means episodes of tariff escalation will tend to increase volatility and heighten the value of assets that perform when cross-border trade is constrained. 

Below are our thoughts at Eraya Capital and the questions we encourage managers and founders to ask. These are not knee-jerk defensive moves. They are deliberate adjustments to a world where policy shifts are now part of the operating environment.

1. Tilt to domestic-first, culture-driven sectors

Some industries derive value from local demand, creativity, and community rather than large cross-border inputs. Content production, local apparel and fashion brands that manufacture in India, coffee and speciality F&B chains, and skincare and wellness companies that sell on brand and formulation are less exposed to import tariffs. Their risk profile depends on taste cycles and local distribution, not on a tariff timetable. These businesses can scale with domestic demand and often adapt more quickly to input-price changes.

2. Keep alternatives that stabilise portfolios

Government securities and high-quality fixed income offer a predictable counterweight during periods of trade friction. Art and other cultural assets behave differently from financial markets and can serve as a diversifier for patient capital. In public equities we favour companies with strong governance, healthy cash flow, and the ability to re-optimise sourcing. In early-stage investing we look for startups addressing domestic gaps – logistics, last-mile cold chain, domestic fintech rails, are all areas where growth is anchored to the Indian market.

3. Engage with management on policy readiness

We make governance a first-order question. Boards and management teams that maintain an active policy and compliance lens tend to navigate trade shifts more effectively. At Eraya Capital, we prioritise founders who are fluent in regulatory trade-offs, and companies that have built the relationships necessary to act when policy windows open.

Sectoral examples and why they matter

Content and production scale by attention. A well-made series or a content IP can be monetised across platforms and tends to be insulated from tariffs. Apparel brands that source and produce locally can control their margins by moving production closer to demand. Specialty coffee and experiential cafés depend on footfall, brand loyalty, and unit economics. Skincare and wellness rely on formulation, brand, and distribution channels that are local-first. Finally, art is a long-horizon asset whose value is driven by provenance and collector interest rather than trade agreements. In each case the investment rationale is rooted in domestic demand and cultural capital, which provide a natural hedge against trade shocks.

Portfolio construction in practice

We remain constructive on India. Its domestic market, reform momentum, and demographic tailwinds are durable. Still, the portfolio tilt is changing. Public equity allocations favour companies with strong balance sheets and limited direct exposure to U.S. import-led revenue. Private allocations favour founders building for India-first scale or for diversified exports. We maintain a disciplined allocation to government securities to manage short-term volatility. We also keep a smaller allocation to art and other long-duration cultural assets for diversification that is uncorrelated with market cycles.

These are modest shifts, not wholesale abandonment of international opportunity. The right balance depends on time horizon. For shorter horizons, hedging and quality exposure matter most. For patient capital, geopolitical cycles create entry points into companies that can leverage market dislocations and emerge with stronger domestic moats.

Outrunning everchanging geopolitical scenarios

Policy will continue to surprise. Tariffs may rise, fall, or be negotiated. Some sectors will suffer immediate pain while others will restructure to advantage. The investor’s edge lies in disciplined thinking: anticipate variability, prefer businesses that can act, and recognise that conviction must be tempered by contingency.

Eraya Capital invests across listed and unlisted equities, fixed income, and alternatives. That multi-asset view helps us tailor responses for different cycles. We seek businesses with quality founders, governance, and the capacity to adapt. We value patient capital, because when policy becomes part of the landscape, the payoff accrues to those who can wait and who can work with management to shape resilient outcomes.

Policy is now a constant force in investment outcomes. It will reshape supply chains, alter margins, and create cycles of disruption and opportunity. Investors must build for resilience – through sector choice, governance quality, and portfolio balance.