Financial markets are reacting to Donald Trump’s victory and Republican dominance in the 2024 US presidential election, with expectations shaping market movements.

Analysts suggest that this victory can significantly impact emerging markets, equities, and currencies, primarily due to reduced globalisation policies. Financial experts believe India could benefit from a Trump presidency, thanks to its domestic consumption-driven growth, potential gains from lower commodity prices, supply chain changes, and strengthened foreign relations.

Trump’s return to the Oval Office could have a major impact on Indian businesses, particularly through his aggressive tax cuts and immigration policies. Export-driven sectors like IT, pharmaceuticals, textiles, and metals might face direct challenges, while industries such as oil & gas, industrials, defence, and utilities could experience more indirect effects.

Analysts are divided on the potential impact of a Trump victory. Some expect a surge in Indian stocks driven by pro-business policies and tax cuts, while others warn of initial volatility as investors adjust to the changes under his leadership.

The race was expected to trigger market fluctuations, with a potential temporary rally in US equities if Republicans secure a sweep. On the flip side, China’s stock markets may suffer from heightened uncertainty, creating a potentially favourable scenario for India, especially in terms of FPI positioning and capital inflows.

Some Factors Behind Trump’s Victory

Trump’s Rural Support Surge: Trump has increased his support in rural areas, outperforming his 2020 margins in states like Indiana, Kentucky, and Georgia, with significant gains in counties such as Lackawanna in Pennsylvania.

Suburban Shift Stalls for Democrats: The expected suburban shift towards Democrats slowed, with suburban areas like Loudoun County in Virginia showing reduced Democratic margins compared to 2020.

Decline in Democratic Support Among Voters of Colour: Trump gained more support from non-white voters, especially within Latino communities, signalling an erosion of Democratic backing among these groups.

Political Background of Donald Trump

Donald Trump, a businessman-turned-politician, entered office as the 45th President in 2017 with a drive to fulfil key campaign promises through a series of swift executive actions. On his first day, he moved to minimize “unwarranted economic and regulatory burdens” of the Affordable Care Act, pushing for its repeal. Trump also signed an executive order imposing a five-year lobbying ban on former executive branch employees, though he softened certain lobbying restrictions put in place by the Obama administration. These initial actions set the tone for his presidency, marked by a populist, nationalist approach that sought to disrupt Washington’s status quo and reshape the political landscape.

Benefits of Trump’s Victory for India

• Indian export sectors could benefit from higher tariffs on Chinese products, boosting the competitiveness of Indian manufacturers in auto parts, solar equipment, and chemicals in US markets.

• Energy costs may drop due to Trump’s fossil fuel policies and slower Chinese economic growth, positively impacting Indian oil companies like HPCL, BPCL, IOC, and gas distribution firms such as IGL and MGL.

• The manufacturing and defence sectors could see growth as Trump’s focus on US industrial development may benefit companies like ABB, Siemens, Cummins, Honeywell, GE T&D, and Hitachi Energy.

• Trump’s resolution of international tensions could improve supply chain efficiency, offering opportunities for Indian defence companies like Bharat Dynamics and HAL.

• Trump’s leadership could improve the business climate, benefiting Indian equity markets through lower corporate taxes, fewer regulations, and business-friendly policies.

Aspects to Address for India with Trump’s Return to Power

• Trump’s presidency could trigger inflation, leading to higher interest rates and increased costs for US-sourced materials and equipment, impacting Indian businesses.

• His economic policies could strengthen the US dollar, raising bond yields and attracting global capital, which may weaken the Indian rupee and increase import costs, especially for oil.

• Trump’s policy uncertainties could cause extended market instability, with US markets outperforming Indian markets during his first term.

• Restrictions on H-1B visas under Trump increased costs for Indian IT companies, but they have adapted by hiring locally in the US and focusing on green card holders.

• Trump’s criticism of India’s trade policies and potential pressure for reciprocal tariffs could impact sectors like IT, pharmaceuticals, and textiles, though reduced Chinese manufacturing could benefit India.

• The US fiscal deficit under Trump could lead to global inflation and higher interest rates, challenging emerging markets’ monetary policies, with India’s domestic-focused economy offering some protection.

Bottom line

Trump’s victory could bring both opportunities and challenges for India. While sectors like manufacturing, defence, and energy may benefit from his policies, the potential for inflation, a stronger US dollar, and increased trade tensions could pose risks. Indian businesses may face some volatility, but the domestic-focused economy could provide some protection in the face of global uncertainties.

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