How will the next Trump administration affect India?

On February 25, 2020, Indian Prime Minister Narendra Modi shook hands with former US President Trump before meeting at Hyderabad House in New Delhi.

Mandel and | AFP | Getty Images

This report comes from this week’s CNBC “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse and the big players behind its meteoric rise. Like what you see? You can subscribe here.

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Donald Trump decisively won the US presidential election, becoming one of only two US leaders to regain the keys to the White House after a period out of office.

As in 2016, investors are grappling with policy uncertainty surrounding his presidency and what might happen next year.

However, the outcome may be very different from eight years ago – at least for India.

manufacturing

At first glance, Trump’s “Make America Great Again” campaign appears to be a double-edged sword and inconsistent with Prime Minister Narendra Modi’s “Make in India” initiative.

Most analysts say taxes on goods imported from China into the United States could benefit India as Indian companies shift manufacturing to the South Asian country to avoid tariffs. Global trade has changed dramatically over the past four years, benefiting India and with President Joe Biden retaining most of the tariffs Trump imposed on China.

“Potential tariff or non-tariff barriers from the US to Chinese imports, along with the Make in India push for domestic manufacturing in India, may have a positive impact on Indian (electronics manufacturing services) companies in areas such as PCB (circuit), semiconductors, mobile phones, cables, etc. and Wires, etc.,” Macquarie Capital analyst Aditya Suresh said, quoting the cable and wire maker. Polycarb As an example of a stock that benefits from this situation.

Analysts also say the benefits of supply chain relocation, with companies based out of India and China, would outweigh the impact of widespread tariffs on all U.S. imports

However, Trump took unilateral steps during his previous term to impose tariffs on India by excluding it from a special trade program called the Generalized System of Preferences. According to the Indian Customs Service, tariffs have been imposed on about $5 billion worth of Indian exports to the United States since 2019. Observer Research Foundation.

tax increases and tax cuts

Import tariffs could raise U.S. consumer prices and push up inflation bond yield. higher U.S. Treasury yields In today’s sticky market environment, capital is often quickly taken away from emerging markets, including India.

Why invest in high-risk overseas stocks when Uncle Sam offers a risk-free investment rate of 4.5% per year?

Foreign investors have begun to walk with their wallets in their hands. $1.5 billion worth of Indian stocks were offloaded this month, building on October’s sell-off of $11 billion worth of Indian stocks. last month, nifty 50 The index fell 6%, its worst monthly performance since March 2020.

If the Republicans control both houses of Congress and cut the U.S. corporate tax rate to 15%, it will also boost the U.S. stock market. That makes it harder for Indian stocks to outperform, with Mumbai-listed stocks starting to struggle to meet profit expectations.

migrant

When President Trump advocated curbing illegal immigration in the United States during his campaign, as long as the new government’s focus remains on “illegality,” the Indian IT industry will still be protected. However, if the unemployment rate continues to rise as it has in the past few quarters, the risk of policy uncertainty will become a priority.

Citi economists Samiran Chakraborty and Baqar Zaidi said: “IT services are likely to be affected as the U.S. becomes the dominant end market, and there may also be an impact on immigration. changes occur.

Companies such as Tata Consultancy Services, HCL Technologyas well as those listed in the United States Infosys Reliance heavily on work permits to bring Indian workers into the United States. Additionally, since the Covid-19 pandemic, most companies have cut costs through remote working.

vitality

On the one hand, analysts expect India’s interests to align with those of the United States in: oil price. Whether intentional or coincidental, oil prices were at low to moderate levels during Trump’s last term. Market observers expect this scenario to repeat itself during his second term.

With India importing more than 90% of its oil needs, New Delhi is likely to welcome any US steps to preserve oil demand. oil price low.

A quick resolution to the war in Ukraine – a Trump campaign promise – would also have a negative impact on oil prices.

On the other hand, India also hopes to become an exporter of renewable energy products. Judging from the stock market’s reaction to the news of the US election results, this industry is unlikely to be a boon for Trump.

Mumbai-listed wind turbine manufacturer Suzlon EnergyThe company’s stock price plummeted after the results of the U.S. election were announced. Although the company’s U.S. revenue only accounts for 1.5% of its total revenue, sales grew 42% over the past year, according to FactSet. Will it continue to grow in the future?

Sanjeev Prasad of Kotak Institutional Equities said “possible anti-ESG practices by the next US administration may not have a positive impact on some of India’s exports” such as solar panel module manufacturing business.

need to know

Telecom company Jio, owned by Mukesh Ambani’s Reliance Industries, is reportedly planning an IPO in 2025. The company is currently India’s largest telecom operator with 479 million users. Two people familiar with the matter told Reuters that Ambani believed Rio Tinto’s current revenue stream was stable enough to go public. Reliance aims to make Rio Tinto’s flotation bigger than Hyundai India’s $3.3 billion, which would make it According to the first source, this is India’s largest initial public offering.

The Reserve Bank of India is braced for US volatility. Two sources familiar with the central bank said the central bank’s large buffer of foreign exchange reserves could be used to defend the rupee. Any new tariffs on China imposed by the incoming U.S. president and a stronger U.S. dollar could lead to local currency outflows and increase imported inflation.

An Indian auto stock is listed as a top pick by Goldman Sachs. The bank’s vice president of equity research, Chandramouli Muthiah, wrote that the stock has “unique access” to the Indian auto market and gives it potential upside of 25% in 12 months. (Available to subscribers only)

What happened to the market?

Indian stocks appear to be continuing their decline. this nifty 50 The index fell 0.5% for the week after digesting the results of the U.S. election. The index has gained 11.36% this year.

Despite the sharp swings, the benchmark 10-year Indian government bond yield was almost unchanged from last week at 6.78%

HDFC Securities CEO Dhiraj Relli pointed out on CNBC television this week that the valuation of the Indian market has been very high in the past few years, with a premium of nearly 90% compared to other emerging markets. Reilly warned investors to temper their expectations, arguing that returns of around 12% to 15% would be favorable.

Similarly, VK Vijayakumar, chief investment strategist at Geojit Financial Services, noted that India’s recent market correction is justified as “valuations have been at elevated levels.” However, from a sectoral perspective, Vijayakumar noted that he is bullish on large private sector banks “even now, their valuations are not only modest but attractive”.