Donald Trump’s Second Term: Impact on US and Indian Economies
A report by Elara Capital suggests that a second term for Donald Trump as US President could have positive effects on US equities and a mixed but generally positive impact on India’s economy. While some Indian goods may face indirect tariff impacts, sectors like IT, pharmaceuticals, electronics manufacturing services (EMS), and defense are expected to benefit from Trump’s economic and foreign policies.
Under Trump’s administration, the Federal Reserve might adopt a hawkish stance, potentially raising interest rates unless inflation and growth rates decline. US 10-year yields could reach 5% in the next three months, which might limit the benefits of any Fed rate cuts. This could challenge emerging market currencies, including the Indian rupee, with the USD/INR exchange rate possibly hitting 84.5 due to a strong dollar and rising US bond yields.
Elara Capital remains optimistic about Indian equities, especially in IT, pharma, EMS, and defense sectors, due to their resilience and US market exposure. However, the Indian rupee may face depreciation pressures from a strengthening US dollar and firming yields. Weakening corporate earnings in India and sustained foreign institutional investor outflows could further strain the rupee.
While Trump’s presidency might drive a “risk-on” sentiment in global markets, India could face trade challenges from Trump’s ‘Make in America’ agenda, with higher tariffs on select Indian exports. Increased US tariffs on Chinese goods might have mixed effects on India, as Indian exports in overlapping categories like textiles and steel could see disrupted demand chains. However, India could benefit from Trump’s anti-China stance, with potential gains in manufacturing and assembly exports to the US.
Indian IT could benefit from higher US corporate IT spending driven by Trump’s proposed tax cuts, incentivizing digital investments. For Indian pharma, a weaker rupee and reduced dependence on China could boost exports, though the sector remains cautious about potential US drug price controls. Enhanced Indo-US security cooperation in the Indo-Pacific region is expected to strengthen India’s defense sector, opening new partnership opportunities.
Trump’s focus on fracking and boosting US oil output could benefit India’s oil-import-dependent economy, as lower global oil prices would favor oil marketing companies and other sectors reliant on crude oil derivatives. Elara also highlights the promising future of India’s EMS and data center industries, aligning with Trump’s supply chain diversification efforts. If US-China tensions escalate under Trump, it may create further volatility in global markets. In the near term, global central banks, led by the Fed, are expected to reduce interest rates, stabilizing growth risks in the US.
Doubts Revealed
Donald Trump -: Donald Trump is a businessman and politician who was the 45th President of the United States from 2017 to 2021. He is known for his ‘America First’ policies.
US equities -: US equities refer to stocks or shares of companies that are based in the United States. When people talk about US equities, they are discussing the stock market in the US.
Tariff -: A tariff is a tax that a government places on goods coming into or going out of a country. It can make imported goods more expensive, affecting trade.
Federal Reserve -: The Federal Reserve, often called the Fed, is the central bank of the United States. It helps manage the country’s money supply and interest rates.
Interest rates -: Interest rates are the cost of borrowing money or the reward for saving money. When interest rates go up, borrowing money becomes more expensive.
Emerging market currencies -: Emerging market currencies are the money used in countries that are still developing their economies, like India. These currencies can be affected by changes in global financial policies.
Make in America -: The ‘Make in America’ agenda is a policy that encourages producing goods within the United States to boost local jobs and industries.
Anti-China stance -: An anti-China stance refers to policies or actions that are against China’s influence or trade practices. This can affect global trade relationships.