US Election Results: 4 key factors that may impact Indian stock market as Trump eyes return to the White House

Indian stock market's benchmark indices, Sensex and Nifty 50, rallied over 1% on Wednesday in response to the US election results 2024, which indicate a likely victory for Republican candidate and former President Donald Trump over Democratic candidate Kamala Harris.

On Wednesday, the Sensex surged 901.50 points, or 1.13%, to close at 80,378.13, while the Nifty 50 settled 270.75 points, or 1.12%, higher at 24,484.05. Market sentiment reflects optimism regarding Trump’s impending return to the White House, though concerns loom about the potential impact of his protectionist policies on the global economy and financial markets.

"Markets have reacted to Donald Trump’s probable re-election, with bond yields rising sharply. The 10-year Treasury yield has already exceeded 4.4%, suggesting that Trump’s economic policies could be inflationary. His stance on tariff increases and tax cuts could impact US Federal Reserve policy, likely slowing the current interest rate reduction cycle. This, in turn, could influence global markets, particularly impacting Indian export-driven industries,” said Vinod Karki, Equity Strategist at ICICI Securities.

Foreign brokerage Nomura predicts that India may emerge as a relative beneficiary under Trump’s policies due to its domestic demand-driven growth model, reduced commodity prices, and shifts in global supply chains.

“The US also sees India as a strategic counterweight to China on foreign policy. India is a large, domestic demand-driven economy, so the fallout of weaker US economic growth should be limited. Any frictions on trade and immigration will likely be more than offset by the gains accruing to India from the ongoing supply chain shifts, as de-risking from China gathers momentum under a Trump presidency,” Nomura said in a note.

Here are four key factors likely to influence the Indian stock market as Trump prepares to re-enter the White House:

Interest Rate Cuts

Analysts anticipate that Trump’s inflationary policies may slow the pace of interest rate cuts by the US Federal Reserve, with potential repercussions for India’s monetary policy.

“If the US Fed delays interest rate cuts to combat inflation, foreign portfolio investment (FPI) flows into India could weaken. There is typically a negative correlation between US interest rates and FPI inflows to emerging markets, which could put further pressure on India's capital markets. A delay in rate cuts by the US Fed could have a ripple effect on India's monetary policy. With the RBI already facing slowing economic growth, any delay in rate cuts could deepen the challenges of managing domestic inflation and boosting investment sentiment,” said Nitin Aggarwal, Director of Investment Research and Advisory at Client Associates.

Trade Relations

Trump's administration may usher in a more protectionist trade policy, with higher tariffs, potentially impacting emerging markets reliant on US trade.

“Trump's protectionist stance—potentially imposing heavy tariffs on imports—could have wide-reaching effects, particularly on emerging markets that rely heavily on trade with the US. India, in particular, may face challenges from a stronger USD, leading to capital outflows and inflationary pressures. Additionally, Trump's strict immigration policies could negatively affect India's tech industry, which depends on the free movement of skilled labour,” said Ross Maxwell, Global Strategy Operations Lead, VT Markets.

According to Aggarwal, the consequences of Trump’s policy shift could be twofold for India.

“First, certain sectors like Pharmaceuticals and IT may experience challenges. Indian generic drug manufacturers could face increased tariffs on their exports to the US, affecting the pharmaceutical industry. Meanwhile, India's IT sector might also see a slowdown in demand, as a trade war and economic slowdown could reduce discretionary spending in the US,” said Aggarwal.

China Relations

Trump’s firm stance on China, which he views as a security threat, may strengthen India’s position amid a global supply chain shift away from China.

Nomura believes that short-term trade disruptions are likely to be more than offset by the medium-term benefit to India from supply chain relocation, as de-risking from China strategy gains further momentum under Trump 2.0.

“Our analysis shows that India remains at the forefront of the global value chains shifting away from China, owing to its large domestic consumer market, reforms momentum and the policy focus on domestic manufacturing,” Nomura said.

As per Maxwell, opportunities in defence, tech, and the expansion of Indian exports in sectors like pharmaceuticals and IT services may arise.

“In summary, while Trump's policies present both risks and opportunities, they are likely to create a cautious outlook for the global economy,” Maxwell said.

Geopolitical Tensions

Trump has expressed intentions to resolve the Russia-Ukraine conflict by halting aid to Ukraine, potentially leveraging his rapport with Russian President Vladimir Putin. His strong support for Israel and likely favourable policies toward Taiwan suggest a continuation of military and economic backing for US allies. Should Trump facilitate an end to prolonged conflicts, global markets may respond positively, benefiting from reduced uncertainty.

In conclusion, while Trump’s potential re-election presents both risks and opportunities, his policies could lead to a cautious outlook for the global economy.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.