Donald Trump secured a second term as president after winning in crucial battleground states on Wednesday, NBC News reported. This momentous victory came as a response to Trump's defeat in the 2020 election, which he and many of his supporters unfoundedly argued was fraudulent. The outcome of the US Presidential elections is not confined to domestic implications; it holds the power to reverberate globally, particularly impacting nations like India.
A win by Trump will have repercussions on worldwide markets, including those in India, as the 78-year-old has pledged to veer away from the economic and trade strategies of President Joe Biden. In response to Trump's victory, the Indian equity market has demonstrated a positive reaction, with both the NSE Nifty 50 and BSE Sensex indices experiencing gains of one percent.
If there is an increase in economic activity in the United States, it can have a positive impact on emerging economies through a ripple effect. This is particularly beneficial for India, given its prominence as a major exporter of information technology services, pharmaceutical products, gems, and jewellery.
Foreign portfolio investors (FPIs) have once again shifted their stance in the Indian stock markets in October, transitioning from net buyers to net sellers. According to data from the National Securities Depository Limited, FPIs sold off stocks amounting to Rs 94,017 crore in October. This comes after four consecutive months of being net buyers, where they purchased stocks worth Rs 26,565 crore in June, Rs 32,365 crore in July, Rs 7,320 crore in August, and Rs 57,724 crore in September.
FPIs had played a significant role in driving the upward momentum in the stock market, with the recent change in direction marking a departure from this trend. Foreign Portfolio Investment (FPI) involves investors purchasing foreign financial assets, a concept that has been closely watched by Indian investors in anticipation of the outcome of the US elections and the Federal Reserve's policy meeting scheduled for November 8.
How Donald Trump may affect FPI inflows
India and the US have a longstanding history of trade disputes, with President Trump previously labeling India as a “tariff king”. During the Trump administration's first term, India was subjected to US tariffs on steel and aluminium in 2018 and lost its preferential trade status under the Generalized System of Preferences (GSP), impacting approximately 12% of its exports.
Despite these challenges, India has bolstered its relationship with Trump, supported by a close Modi-Trump alliance. According to official data, India’s total exports to the US reached $54.7 billion by August 2024. The trade balance leans in favor of New Delhi, with imports totaling around $28.5 billion. This trade surplus could potentially make India a target of Trump's proposed tariffs.
"Under a Trump 2.0 presidency, we expect a preference to do business with India and a reversal of recent negative FPI flows, driven by supply chain realignments. With Trump’s presidency, India could see renewed Foreign Portfolio Investment (FPI) inflows as trade and economic alignment strengthen. Despite past trade skirmishes, both nations have built a robust partnership, with the US seeing India as a strategic counterweight to China, with considerable synergy in defence, security, clean energy, and people-to-people ties. India too sees the US as an important partner in its economic growth story. We believe India is likely to benefit on the foreign policy front under Trump 2.00," said Manish Bandhari, the Founder, CEO & Portfolio Manager at Vallum Capital Advisors.
"The recent market volatility can be attributed to FII selling due to strengthening dollar and the uncertainty related to the US elections. Stocks have also reacted to earnings. With the US elections past us, it may be back to business as usual and company-specific fundamentals will drive stocks. The market is reacting quite rationally and i am not worried about a bubble-like situation. Good results are being rewarded and bad ones punished. The market has been quite rational and has been discounting news and events. Many sectors like chemicals, banks, finance companies, IT have corrected significantly in the past 24 months, and these have paved the way for other sector leaders like capital goods, auto, real estate, defence etc. So while we see the indices near all-time highs, not all stocks and sectors are actually at highs. There is always scope for active management and I am not a big fan of waiting for a ‘big’ correction to deploy funds. Moreover, the retail investors continue to be positive and they are conditioned to buy on any dip - big or small and that is what we are seeing in the market. One should of course reduce future return expectations given the stellar run over the past 1, 3 and 5 years but there is enough scope for stockpicking," said Mihir Vora ,CIO, TRUST Mutual Fund.
"The “flow of money to China” debate is pretty much settled after the events of last week. Equity investors have not made money in China in the past 25 years – the period in which China went through its greatest period of growth and became a global manufacturing powerhouse. If one didn’t make money then, how do you expect to make money when it is struggling for growth and the government is taking knee-jerk, desperate measures to stoke growth and consumption? Demographics are against China and in favour of India. So structurally, India should continue to attract flows. It is too risky to bet against India. Key risks are inflation in the US and rising interest rates and the ongoing geopolitical issues The wars in the Middle East and Ukraine are risk factors for sure, but so far commodities have remained subdued due to the slowdown in Europe and China. A few years ago, oil would have spiked up significantly in such a scenario but with the US turning net exporter and China consumption not growing (impact of slowdown and renewables capacities), this is not happening," Vora added.
Sectors that can benefit in Trump 2.0
Trump's win is set to benefit multiple sectors. The housing and energy sectors, including coal, thermal projects, nuclear projects, and oil drilling companies are poised for growth in the US. Discretionary tax cuts may drive higher consumer spending, indirectly benefiting Indian exporters.
Both the US and Indian IT sectors stand to gain from increased IT investments. However, offshoring might face challenges if Trump encourages more jobs in the US. A cut in corporate tax by Trump is likely to bring more business for the Indian tech companies. Under Trump’s first term, IT companies grew at a CAGR of 13% during 2016-2020 and the IT index generated a return of 45% despite challenges on visa and offshoring. In healthcare, the Biosecure Act has impacted pharma companies positively. We see India partnering in affordable healthcare.
In the long term, we may see capital shifting from bonds to equities, an increase in gold prices due to inflation, and potential INR appreciation as inflation narrows between India and the US.