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The Indian equity markets experienced a significant surge following Donald Trump's victory in the US presidential election. Investors were buoyed by the prospect of India becoming a key beneficiary of the 'China Plus One' policy, a strategy that encourages companies to diversify their manufacturing and supply chains away from China. The IT sector emerged as the top performer, driven by expectations of potential corporate tax cuts in the US, which could boost the growth prospects of Indian IT companies.
HCL Tech, Tech Mahindra, Infosys, and Tata Consultancy Services led the charge, registering gains of 3.5% to 4.5%, contributing a significant 51% to the Sensex's overall gains. The pharma sector also performed well, with Dr Reddy's and Sun Pharma witnessing increases of 2.2% and 1.43%, respectively. This rise was attributed to a receding fear of caps on prescription drug prices in the US, a policy that would have negatively impacted the pharma sector.
Overall, the Sensex and Nifty closed at 80,378.13 points and 24,484.05 points, respectively, both showing a 1.1% increase. India outperformed its global peers, with the MSCI EM index falling nearly 1% and the Euro Stoxx 50 rising by 0.6%. The broader markets also displayed strong performance, with the BSE Smallcap index gaining 2% and the BSE Midcap index jumping 2.3%. The total market capitalization of BSE-listed companies surged by a substantial Rs 7.7 lakh crore.
Experts generally expressed optimism about the Indian market's outlook under a potential Trump administration. Trideep Bhattacharya, president and CIO – equities at Edelweiss MF, highlighted the potential for India to benefit as a relative beneficiary among emerging markets as US companies seek to diversify their supply chains. He believed that sectors like electronics manufacturing services (EMS), chemicals, and pharmaceuticals would particularly benefit from the 'China Plus One' strategy.
However, not all experts shared this optimistic view. Andrew Holland, CEO of Avendus Capital Alternate Strategy, expressed concerns about the potential for a strong dollar under a Trump regime, which could lead global investors to favor developed markets over emerging markets. He also questioned the immediacy of the 'China Plus One' effect, citing the lack of significant earnings growth in India.
Despite the overall positive sentiment, foreign portfolio investors (FPIs) sold shares worth Rs 4,446 crore on Wednesday, while domestic institutional investors (DIIs) bought shares worth Rs 4,889 crore. While Holland acknowledged the positive impact of the election results on US markets, he remained uncertain about their long-term impact on India. He noted that the narrative of India benefiting from China facing tariffs might not translate into immediate substantial foreign investment inflows.
Experts also highlighted the potential challenges for the Indian market if China announces another major stimulus measure on Friday. The aggressive selling by FPIs, which began with China's first stimulus measure, has already led to cumulative 2024 FPI flows in India turning negative for the first time in over four months. This event raises concerns about the potential for further FPI outflows if China implements another significant stimulus package.