How will the next Trump administration impact India?

On Nov 8, 2024

India’s Prime Minister Narendra Modi shakes palms with former U.S. President Donald Trump earlier than a gathering at Hyderabad Home in New Delhi on February 25, 2020.

Mandel Ngan | Afp | Getty Photos

This report is from this week’s CNBC’s “Inside India” e-newsletter which brings you well timed, insightful information and market commentary on the rising powerhouse and the huge companies behind its meteoric rise. Like what you see? You’ll be able to subscribe right here.

The large story

Donald Trump decisively received the U.S. presidential election, changing into certainly one of solely two American leaders who’ve retaken the keys to the White Home after a spell out of workplace.

Simply as in 2016, buyers are grappling with coverage uncertainty surrounding his presidency and what may are available the following yr.

But, the outcomes are more likely to be vastly totally different from eight years in the past — a minimum of so far as India is worried.

Manufacturing

At first look, Trump’s “Make America Great Again” marketing campaign seems double-edged and at odds with Prime Minister Narendra Modi’s “Make in India” initiative.

Taxes on items imported from China into the U.S. will probably profit India, most analysts say, as corporations shift manufacturing to the South Asian nation to keep away from duties. World commerce modified significantly over the previous 4 years — benefiting India — as President Joe Biden retained a lot of Trump’s tariffs on China.

“Potential tariff or non-tariff barriers on Chinese imports in the U.S. and India’s domestic manufacturing thrust with Make in India, could be positive for Indian [electronics manufacturing services] companies in areas like PCBs [electric circuits], semiconductors, mobile phones, cables and wires, among others,” mentioned Macquarie Capital’s head of India analysis Aditya Suresh, citing cable and wire maker Polycab as an example of a stock that stands to benefit in this scenario.

Analysts also suggest that the benefits from supply chains reorienting, with companies basing themselves in India and out of China, will outweigh the impact of universal tariffs on all goods imported into the U.S.

However, Trump took unilateral measures during his previous reign, targeting India with tariffs by removing the country from a special trade program known as the Generalized System of Preferences. About $5 billion worth of exports from India to the U.S. have had duties applied to them since 2019, according to the Observer Research Foundation.

Tax rises and tax cuts

Import duties can increase U.S. shopper costs and push up inflation alongside bond yields. Larger U.S. Treasury yields usually usurp cash away from rising markets quickly, together with India, in in the present day’s viscous market atmosphere.

Why spend money on high-risk equities abroad when Uncle Sam is providing 4.5% yearly risk-free in your funding?

Overseas buyers have already begun strolling with their wallets, selling $1.5 billion worth of Indian stocks this month on top of the $11 billion in October. Final month, the Nifty 50 index fell by 6% and logged its worst month-to-month efficiency since March 2020.

Slashing the U.S. company tax price to fifteen%, if Republicans take management of each homes of Congress, will additionally enhance U.S. inventory markets. That makes it tougher for Indian equities to outperform simply as Mumbai-listed shares begin to battle to fulfill earnings expectations.

Immigration

President-elect Trump campaigned on curbing unlawful immigration in the United States, and simply so long as the new administration’s focus stays on “illegal,” the Indian IT sector stays shielded. However, if unemployment continues to rise, because it has over the previous few quarters, coverage uncertainty danger turns into entrance and middle.

“IT services could see an impact with U.S. being the dominant end market as well as potential changes to immigration, if any,” mentioned Citi economists Samiran Chakraborty and Baqar Zaidi.

Corporations corresponding to Tata Consultancy Companies, HCL Tech, and U.S.-listed Infosys are closely reliant on work permits to deliver staff from India into the U.S. However, over the years, the share of overseas employees employed at these corporations has reportedly fallen to lower than half, making them extra resilient to modifications in visa guidelines. Moreover, since the Covid-19 pandemic, most corporations have trimmed their prices with distant working.

Vitality

On the one hand, analysts anticipate Indian pursuits to be aligned with these of the United States concerning oil costs. Trump’s earlier time period in workplace, whether or not deliberately or coincidently, noticed reasonable to low oil costs. Market observers anticipate that to be repeated in his second time period.

As India imports over 90% of its oil wants, New Delhi will probably welcome any transfer by the U.S. to maintain oil costs low.

A fast decision of the conflict in Ukraine — Trump’s marketing campaign promise — would additionally show to be destructive for oil costs.

On the different hand, India can also be hoping to turn out to be an exporter of renewable vitality merchandise and judging by the inventory market’s response to the information of the U.S. election outcomes, that sector is unlikely to be in Trump’s good books.

Mumbai-listed wind turbine maker Suzlon Vitality‘s shares tumbled after the U.S. election outcomes. Though the firm earns simply 1.5% of its complete income from the U.S., gross sales have grown by 42% over the previous yr, in keeping with FactSet information. Will it proceed to develop in the future?

Kotak Institutional Equities’ Sanjeev Prasad mentioned the next U.S. administration’s “likely anti-ESG approach may not be positive for a portion of India’s exports,” corresponding to photo voltaic panel module makers.

Have to know

Jio, the telecom enterprise of Mukesh Ambani’s Reliance Industries, reportedly planning a 2025 IPO. The corporate is now India’s greatest telecom participant, boasting 479 million subscribers. Ambani believes Rio now has a income stream steady sufficient to listing publicly, two sources acquainted with the matter informed Reuters. Reliance is aiming to have Rio’s itemizing exceed Hyundai India’s $3.3 billion, which might make it the greatest IPO in India, in keeping with the first supply.

The Reserve Financial institution of India prepared for U.S. volatility. The central financial institution’s giant buffer of overseas trade reserves will be deployed to defend the rupee, mentioned two sources acquainted with the financial institution, who requested to stay nameless due to the delicate matter. Any new U.S. tariffs towards China, imposed by the upcoming U.S. president, in addition to a strengthening greenback, might trigger outflows in native foreign money and improve imported inflation.

An Indian automotive inventory is on Goldman Sachs’ listing of high picks. Chandramouli Muthiah, vp of fairness analysis at the financial institution, wrote that the inventory has a “unique pipeline” in India’s automobile market, and gave it a 25% potential upside inside 12 months. [For subscribers only]