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The second term for Donald Trump as US President will have favourable outcomes for US equities, while offering a mixed but generally positive outlook for India's economy, according to a report by Elara Capital.
While some indirect tariff impacts on Indian goods may arise, sectors like IT, pharmaceuticals, electronics manufacturing services (EMS), and defence are expected to benefit from Trump's anticipated economic and foreign policies. Under a second Trump administration, the Federal Reserve may adopt a longer-term hawkish stance, potentially raising interest rates beyond market expectations unless inflation and growth rates decline significantly. Over the next three months, US 10-year yields could hit 5 per cent, a move that might limit the positive effects of any potential Fed rate cuts. This shift could challenge emerging market currencies, including the Indian rupee, with the USD/INR exchange rate potentially reaching 84.5 due to a firm dollar and rising US bond yields. Elara Capital remains optimistic about Indian equities, particularly in sectors like IT, pharma, EMS, and defence, given their resilience and exposure to the US market. The Indian rupee, however, may face depreciation pressures due to the strengthening of the U.S. dollar and firming yields. Additionally, weakening corporate earnings in India and sustained FIIs outflows could strain the Indian rupee in the near term. While a Trump presidency could drive a "risk-on" sentiment in global markets, India may face trade challenges from Trump's 'Make in America' agenda. Higher tariffs on select Indian exports are possible as Trump aims to boost domestic manufacturing. Elara's analysis also indicates that increased U.S. tariffs on Chinese goods might have mixed consequences for India, as Indian exports in overlapping categories like textiles and steel could experience disrupted demand chains. Nevertheless, India stands to benefit from Trump's anti-China stance, with potential gains in manufacturing and assembly exports to the US. Elara expects Indian IT to benefit from higher US corporate IT spending driven by Trump's proposed tax cuts, which could incentivize digital investments. For Indian pharma, a weaker rupee combined with reduced dependence on China could boost exports, though the sector remains alert to potential US policies on drug price controls. Additionally, heightened Indo-US security cooperation in the Indo-Pacific region is expected to strengthen India's defence sector, opening new partnership opportunities.With Trump's focus on fracking and boosting US oil output, India's oil-import-dependent economy may gain as lower global oil prices benefit oil marketing companies (OMCs) and other sectors reliant on crude oil derivatives. Elara also underscores the promising future of India's EMS and data centre industries, which align with Trump's supply chain diversification efforts. Should US-China tensions escalate under Trump, it may create further volatility in global markets. In the near term, however, global central banks, led by the Fed, will reduce interest rates, stabilizing growth risks in the US. (ANI)
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