US election results: Information Technology stocks such as Infosys Ltd, Wipro Ltd and HCL Technologies Ltd (HCL Tech) will be in focus, so would shares of domestic pharma companies, as early trends suggest the Republican candidate Donald Trump was leading in three states, while the Democratic candidate Kamala Harris was ahead in one state.
Analysts noted that Donald Trump in his first term had through an executive order E.O.13788 “Buy American and Hire American” increased restrictions on H-1B visas in his first term. Denial rates for H-1B/L-1 visas rose substantially during the Trump's tenure and the impact on domestic IT services players was amplified due to their higher dependence on these visas at the time.
At present, there are three bills associated with employment-based immigration, which are currently tabled in the US Congress. These bills aim to protect US workforce, while prioritising high skilled workers for employment-based immigration and improving the overall process. These could, at worst, increase compliance requirement for IT Services, JM Financial said while adding that US Presidential election might have limited bearing on the passage of these bills though.
The domestic brokerage estimated that 65 per cent of Infosys' US employees were on H-1B/L-1 visas in FY17. This fell below 50 per cent in FY20 and is likely to have trended down. Similarly, Wipro reported 69 per cent of global workforce as localised in FY20. "That insulates players to a large extent from any spike in denial rates, if Trump were to return to office," it said.
Pharma stocks such as Sun Pharma, Cipla and Dr Reddy's Labs would also be in focus. Both the Republican and Democratic parties intend to reduce prescription drug costs. The Republican Party intends to increase competition in generic business (negative for US generic pharma companies); expand beneficiaries in the Medicare program (positive as it helps increase generic volumes). Democratic, on the other hand. are aiming for faster approval for first-time generics. This would be positive for US generic pharma companies.
"Sectors with significant exposure to US policies, viz., IT services and pharmaceuticals, and textile sectors could need a re-orientation because of changes in trade policies and healthcare reforms. But the bonhomie and the personal chemistry between the Indian PM and the US President could significantly help to smoothen ruffled feathers. IT, pharmaceuticals, and textile sectors, which export significantly to the US, could be dented. Should Donald Trump romp home, India’s domestic growth path could get an impetus because of Trump’s focus on keeping oil prices low and stable, said Manoranjan Sharma , Chief economist - Infomerics ratings.
Antique Stock Broking in a recent note said that the Trump administration may be a supporter of traditional oil & gas i.e. higher exploration and drilling and roll back of green energy benefits compared to Kamala Harris's focus on climate and emission. Under Trump, lower oil and gas prices would be negative for upstream and positive for OMCs such as HPCL, BPCL and IOC and city gas distributors such as IGL, MGL and Gujarat Gas.
The brokerage said Donald Trump's focus to make the USA a global manufacturing superpower will be beneficial for MNC industrial companies like ABB, Siemens, Cummins, Honeywell, GE T&D, Hitachi Energy, which are in the process of becoming important partners in the value chain of their parent companies having a dominant presence in the USA, Antique Stock Broking said.
"Under the Trump administration, resolution of global conflicts can lead to easing of supply chain for defence companies such as Bharat Dynamics and HAL. Also, the focus on ensuring America's military is the strongest and best-equipped in the world is likely to be a positive for the defence ecosystem in India," it said.
JM Financial noted that a Trump win and increased tariff on China imports would mean China+1 de-risking can accelerate and may benefit Indian auto ancillary companies in terms of higher exports. However, protectionist policies by Trump might require Indian companies to invest in US to localise supplies, which were otherwise exported from India, JM Financial said.
Higher tariffs on Chinese imports under Trump may also result in higher competitiveness of Indian chemicals exporters. Hence, despite the imposition of 10-20 per cent tariffs on Indian imports, chemical exports from India could see a meaningful jump.
In the case of metals, US election outcome is expected to be largely neutral as a tariff hike is already imposed on Chinese steel and aluminum imports and no new policies are likely to be announced by either parties.