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The potential return of Donald Trump to the White House has sparked a flurry of speculation and analysis, with financial institutions scrutinizing the potential implications of his policies. One firm, Nuvama Institutional Equities, has highlighted trade and fiscal policy as crucial areas to monitor closely. The brokerage firm predicts that Trump, if elected, might adopt a more assertive approach to trade than he did in his first term, potentially extending his focus beyond China. This shift stems from the perceived lack of progress in US manufacturing and the persistent trade deficit despite several tariff increases imposed on China since 2018.
On the domestic front, Trump might consider tax reductions or increased spending to bolster the US economy, potentially leading to a larger fiscal deficit. This path would echo his first term's policies, but with the added challenge of a significantly larger US sovereign debt compared to 2018. Nuvama's analysis underscores the potential impact of Trump's economic policies on India, suggesting that increased tariffs and a more aggressive trade stance could slow India's exports, potentially leading to increased inflation and financial market volatility.
The brokerage firm also cautions about the potential consequences of Trump's policies on the global economy. A universal removal of tariffs, while seemingly beneficial, could trigger retaliatory measures from other countries, leading to a global trade conflict with far-reaching implications. This conflict could significantly disrupt global trade, negatively impacting India's exports and potentially exposing it to retaliatory tariffs. Moreover, Trump's economic policies, if pursued aggressively, could create a macroeconomic strain globally, ultimately resulting in higher prices and slower economic growth.
Nuvama's analysis highlights the uncertainty and potential volatility that could arise from a Trump presidency. The brokerage firm notes that while markets were buoyant during the initial year of Trump's first term, subsequent tax cuts led to a correction in the market. The current economic landscape, characterized by elevated valuations and weakening earnings momentum, adds another layer of complexity to the potential impact of Trump's policies. The brokerage recommends a defensive approach for investors, highlighting private banks as a key cyclical area of interest.
Source: Trump’s Return: Key focus on trade and fiscal policies after US Election 2024 win, says Nuvama