News

Published: November 6, 2024
Updated: November 6, 2024

Trump's Comeback: Implications for India's Stock Market, Economy, and Trade

With former U.S. President Donald Trump on the verge of reclaiming the White House, Indian market analysts and economic strategists are closely examining the potential impacts of his leadership on India’s economy, stock market, and trade relations. Market observers suggest that Trump’s economic policies could bring changes across the global landscape, influencing factors like inflation, the dollar’s strength, and international trade policies. Here’s a breakdown of the expected effects of Trump’s presidency on India.

Inflation and Economic Activity in the U.S.

Analysts predict that Trump’s win might boost U.S. spending, keeping inflation rates higher than previously anticipated. This uptick could indirectly impact Indian markets, as a strong dollar and tighter monetary policies could influence trade costs and foreign investment trends in India.

Market Stability and Foreign Investments

Anitha Rangan, an economist at Equirus, noted that the clarity of election results itself brings a level of relief to global markets, which had been experiencing volatility due to political uncertainty. According to Rangan, as stability returns, India’s stock market could shift focus back to fundamentals, potentially reversing the recent pullback by foreign institutional investors (FIIs). Data shows that, since October 2024, overseas investors have divested shares worth nearly Rs 1 lakh crore. A stable outlook on U.S.-India relations under Trump could encourage FIIs to resume investments in the Indian market.

Potential Impact on Trade Relations

Nitin Aggarwal, Director of Investment Research and Advisory at Client Associates, explained that Trump’s potential approach to international trade, known for its protectionist leanings, might reshape U.S.-India trade dynamics. Trump's administration has historically focused on reducing trade deficits by imposing tariffs on imported goods, which could pose challenges for India’s pharmaceutical and IT sectors. These industries may face barriers, with potential tariff increases on Indian-made generic drugs and reduced U.S. demand for IT services if discretionary spending slows in the U.S.

Trade Figures and Economic Growth Concerns

India’s exports to the U.S. have nearly doubled over the last decade, now totaling $77.53 billion, according to data from the Centre for Monitoring Indian Economy (CMIE). However, should Trump intensify tariffs to protect U.S. industries, India may encounter fresh obstacles in these export markets, particularly for pharmaceutical and technology products.

Interest Rates and Investment Flows

A slower U.S. rate-cutting cycle, likely under Trump’s leadership, could echo in India’s monetary policy. Aggarwal points out that a delayed reduction in U.S. interest rates would likely slow foreign portfolio investments (FPI) into India. Furthermore, it could present challenges for the Reserve Bank of India (RBI), which is already navigating inflationary pressures and a sluggish economic outlook. The delay in rate cuts could complicate the RBI’s efforts to stimulate economic growth through domestic rate adjustments.

While Trump’s presidency may bring some hurdles to India’s trade and economic stability, it also presents opportunities for solidifying long-term relations and recalibrating strategies to adapt to evolving U.S. policies. India’s economy, supported by its foundational resilience, stands to navigate this phase by leveraging its strengths in strategic sectors and continuing to foster constructive international relations. Accordingly, as markets stabilize, the effects of Trump’s economic policies may gradually unfold, impacting India’s economy, trade, and financial landscape in significant ways.