Trump 2.0 Holds Promise Of More Positives For India Across Spectrums

The impact of Trump 2.0 on the Indian market will be of varying proportions, including as regards Foreign Portfolio Investment (FPI) inflows, given the history of trade disputes that exist between the two countries and Trump previously calling India a ‘tariff king’. During Trump 1.0, India faced US tariffs on steel and aluminium in 2018 and lost preferential trade status under the Generalized System of Preferences (GSP) that affected nearly 12 per cent of its exports. Despite these issues, India has strengthened ties with Trump, supported by a strong Modi-Trump relationship. Now one can expect a preference to do business with India and a reversal of recent negative FPI flows, driven by supply chain realignments. India could see renewed 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.

It is quite likely that India now stands to benefit on the foreign policy front. In the long term, one may see capital shifting from bonds to equities, an increase in gold prices due to inflation, and potential INR appreciation as inflation narrows between the two nations. However, given his 'America First' approach to trade policy, Trump’s return might impact the Indian market because an increase in tariffs and protectionism can dent India's exports to the US. This will also have an impact on collaboration and investment in fields like technology and defence. Of course, it might result in more energy cooperation, especially given India's expanding energy requirements. Trump's push for US energy independence could favour fossil fuel companies, as he aims to reduce reliance on foreign energy sources. With deregulation in energy production and a focus on boosting domestic oil and gas output, the sector stands to benefit from a more favourable environment, many experts feel. The energy sector is 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 locally. A cut in corporate tax is likely to bring more business for Indian tech companies. After all, during Trump’s first term, IT companies grew at a CAGR of 13 per cent during 2016-2020 and IT index generated a return of 45 per cent despite visa and offshoring challenges. In healthcare, the Biosecure Act has impacted pharma companies positively. The defence sector, driven by Trump's focus on military strength, is expected to see increased demand, with greater government spending on defence initiatives. This trend could extend to companies providing essential services in intelligence, cybersecurity, and homeland security, benefiting from Trump's defence policies. Quite notably, the global markets experienced a relief rally following the US election results. This has led to strong risk-on sentiments, driven by expectations of tax cuts and increased government spending. The domestic buying was broad-based, with IT leading the charge in anticipation of rebound in spending. Moreover, BFSI spending in the US has improved as per IT Q2 results.