Trump 2.0 presidency: Is India set for a positive turnaround in FPI inflows?

Donald Trump has secured a second term as President of the United States after winning in key battleground states. This victory, which follows his defeat in the 2020 election—a defeat he and his supporters claimed was fraudulent—could have significant global repercussions, particularly for markets in India.

Market Reaction in India

In response to Trump's victory, the Indian equity market showed a positive reaction, with both the NSE Nifty 50 and BSE Sensex indices experiencing gains of 1%. This indicates investor optimism about potential economic and trade policy shifts under Trump’s administration.

Impact on Foreign Portfolio Investors (FPI)

Foreign portfolio investors (FPIs) play a critical role in the Indian stock market. In October, FPIs transitioned from net buyers to net sellers, selling stocks worth Rs 94,017 crore after four consecutive months of net buying. The uncertainty surrounding the US elections and the strengthening dollar contributed to this shift.

Analysts’ Insights on FPI Inflows

Manish Bandhari, Founder, CEO & Portfolio Manager at Vallum Capital Advisors, suggests that under a Trump 2.0 presidency, India could see a reversal of recent negative FPI flows due to supply chain realignments and stronger trade and economic ties. Despite past trade disputes, the US views India as a strategic counterweight to China, fostering robust partnerships in defense, security, clean energy, and economic growth.

Mihir Vora, CIO of TRUST Mutual Fund, emphasizes that the market has been rational, reacting to company-specific fundamentals rather than the election outcome alone. He notes that retail investors are conditioned to buy on any market dips, indicating sustained market confidence.

Potential Sector Benefits in Trump’s Second Term

Trump’s policies are expected to benefit multiple sectors:

Housing and Energy: Projects related to coal, nuclear, and oil drilling could see growth.

Consumer Spending: Discretionary tax cuts could drive higher consumer spending, indirectly benefiting Indian exporters.

IT Sector: Both US and Indian IT sectors could gain from increased IT investments, though offshoring might face challenges. During Trump’s first term, Indian IT companies grew significantly despite visa and offshoring hurdles.

Healthcare: The Biosecure Act has positively impacted pharma companies, and India could partner in affordable healthcare.

Long-term Outlook

In the long term, there may be a shift from bonds to equities, an increase in gold prices due to inflation, and potential appreciation of the Indian Rupee as inflation narrows between India and the US. The geopolitical landscape, including ongoing conflicts in the Middle East and Ukraine, remains a key risk factor but has not yet led to significant commodity price spikes due to subdued global consumption.

As the world adjusts to Trump’s second term, India's strategic economic position and market dynamics will play a crucial role in attracting and sustaining foreign investment flows.