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The US election results, with Donald Trump's anticipated return to office, are poised to significantly influence the Indian economy and domestic equity markets. Market analysts anticipate that Trump's victory could lead to increased spending within the US, potentially keeping inflation elevated. A stronger dollar and a more protectionist stance on international trade, characterized by heightened trade barriers, are also expected outcomes. The potential impact of these developments on India's trade relations with the US remains a focal point of discussion.
Anitha Rangan, Economist at Equirus, highlights the importance of a clear election result for market stability. She believes that a decisive outcome could be a positive development for India, given the robust nature of its trade relations with the US. The benchmark equity index BSE Sensex witnessed an increase of 682 points, or 0.86%, reaching 80,159 on Wednesday afternoon, signaling a potential positive response to the election results.
Rangan further emphasizes the role of clarity in stabilizing markets by mitigating volatility and enabling a return to fundamental analysis. She expresses optimism that the recent substantial outflows by foreign institutional investors (FIIs), amounting to Rs 1 lakh crore since October 1, 2024, could reverse. India's robust economic fundamentals provide a strong foundation for a reversal of this trend, and Rangan anticipates positive outcomes in the medium to long term based on the constructive relations between India and the US, including with Donald Trump.
However, Nitin Aggarwal, Director of Investment Research and Advisory at Client Associates, cautions against overlooking potential challenges associated with a Republican-led government under Trump. He anticipates a significant reshaping of trade dynamics, with increased tariffs and a more protectionist approach to international trade. Data from the Centre for Monitoring Indian Economy (CMIE) reveals that India's exports to the US have nearly doubled over the past decade, reaching $77.53 billion, highlighting the potential impact of these policy shifts.
Aggarwal further emphasizes that Trump's previous presidency focused on reducing the US trade deficit, a policy heavily reliant on increased import tariffs. He outlines potential consequences for India, specifically impacting sectors such as pharmaceuticals and information technology. Indian generic drug manufacturers could face increased tariffs on exports to the US, potentially affecting the pharmaceutical industry. Similarly, India's IT sector might experience a slowdown in demand, as a trade war and economic slowdown could reduce discretionary spending in the US.
Furthermore, Aggarwal highlights the potential impact of a delayed US interest rate cut, which could weaken foreign portfolio investment (FPI) flows into India. He underscores the interconnectedness of monetary policies, noting that any delay in rate cuts by the US Federal Reserve could reverberate through India's monetary policy, potentially exacerbating challenges in managing domestic inflation and boosting investment sentiment. The Reserve Bank of India, already facing slowing economic growth, could encounter difficulties in navigating these economic complexities.
Source: US election results: What does Donald Trump victory mean for Indian stock market, FIIs, economy