Donald Trump’s return to the White House as the 47th President of the United States on January 20 Monday has reignited discussions on its potential impact on Indian stock markets. While his victory initially sparked a rally on Dalal Street, with the Sensex jumping over 900 points in November, the current sentiment appears mixed, reflecting both optimism and uncertainty about his second term’s policies.
Market Optimism And Concerns
Indian stock market initially welcomed Trump’s victory, buoyed by expectations of business-friendly policies and a global environment conducive to trade. His earlier administration’s tax cuts and deregulation efforts had created a wave of optimism worldwide, and similar moves are anticipated in his second term.
Notably, Trump’s proposed reduction of the US corporate tax rate from 21% to 15% has already sparked excitement, with Goldman Sachs predicting a 4% rise in S&P 500 earnings, which could have ripple effects in global markets, including India.
However, concerns about Trump’s unpredictable policies, geopolitical tensions, and trade measures loom large. His “America First” agenda, focusing on boosting domestic manufacturing and reducing reliance on imports, may press India to lower its trade restrictions and possibly face higher tariffs on key exports, including pharmaceuticals, IT, and textiles.
Trump’s Tough Stance On China: A Boon For India?
Trump’s aggressive trade policies against China could offer India a silver lining. As US companies look to diversify their supply chains and reduce dependence on China, India could emerge as a favorable destination for manufacturing and investment. This shift could boost Indian exports in sectors like electronics, textiles, metals, and auto components.
A report by Nomura suggests that India may benefit strategically, attracting foreign direct investment (FDI) in manufacturing and defense as it aligns with US interests in countering China’s economic influence.
Impact On Foreign Institutional Investments (FIIs)
Trump’s pro-business policies are expected to foster global liquidity and investor confidence, which could drive foreign institutional investment into Indian equities. Increased FII participation would not only strengthen market sentiment but also boost demand for Indian stocks.
Moreover, Trump’s tax reforms and deregulation plans might create a ripple effect across emerging markets, encouraging global investors to explore opportunities in India’s growing economy.
Trade Relations And Economic Challenges
India’s trade relationship with the US remains a critical factor in determining market outcomes. The US is India’s largest export destination, accounting for 18% of total exports in FY24. Any policy changes under Trump’s administration, particularly those targeting tariffs and trade restrictions, could significantly affect India’s economy.
Sectors such as IT and pharmaceuticals, which depend heavily on the US market, could face challenges if Trump’s H-1B visa policies are tightened further. These restrictions could hurt Indian IT firms’ profit margins and employee mobility.
Outlook For Indian Markets
As Trump 2.0 begins, Indian markets are likely to experience a mix of optimism and caution. While opportunities for strategic alignment and increased FII flows could propel market growth, potential trade barriers and geopolitical risks could introduce volatility.
For now, all eyes are on Trump’s policy announcements in the coming weeks, which will determine whether Indian markets thrive under his presidency or face turbulent times ahead.
ALSO READ: Nita, Mukesh Ambani Meet President-elect Trump Ahead of Inauguration