-By Vaishnavi Ajit Burangey
Indian markets often mirror U.S. market movements, so election uncertainty can increase volatility as investors react to potential policy changes. Pro-business U.S. policies generally lead to more foreign investment in emerging markets which benefits its capital inflow. As the United States navigates a key election, the consequences span the globe. Every shift in Washington's economic policies has an impact on India's markets, with sectors such as IT, pharmaceuticals, and exports constantly monitoring policy signals. In a globalised economy, Wall Street's response frequently sets the tone for Dalal Street. Uncertainty is the one thing that markets dread more than negative news. With Donald Trump being elected as the 47th President of the United States of America, we will see a drastic change in the stock markets. Change in leadership leads to a change in policy which in turn will have a major effect on the stock prices. Yet the effect being high on Wall Street, the Indian stock market will foresee many changes in the various sectors in the Indian economy. Trump’s policies will affect the Russia Ukraine war, the immigration policies, pharmaceutical industry, IT industry, automobile industry, solar industry, tax and interest rates and many more. This effect will lead to drastic rise and fall of stocks in the stock market.
Geopolitical Affect:
Beginning from the Russia-Ukraine war, Trump is very thorough about the relationship with India, Russia and China, this geopolitically can have a positive effect on India. Trump wants to be the peacemaker for the Russia-Ukraine war and negotiate a peace deal which will thereby affect India directly. If Trump’s policies lift any sanction on Russia, this will directly affect the oil and wheat prices in the market allowing oil and wheat to directly enter world economy, due to a drastic decrease this will thereby lead to reducing inflation in India. As Trump has mentioned in many campaigns and public speeches, his hate for China will lead to him imposing higher tariffs on Chinese imports creating a trade war in the world economy. This rivalry between US and China will give a positive edge to India as China will find it difficult to be the top exporter making it easy for India to increase and promote its exports which will provide a trade surplus boosting the investor sentiment and help a boost in the stock prices.
IT industry:
Trump’s policies will have a high impact on the IT industry due to the anti-immigration policies that he has imposed. This will lead to engineers to stay more in India instead of trying to go to America to work. This is also directly affecting the H1B visas where his policies have made it difficult for foreign students to pursue education in America. Some companies like TCS, Wipro, Infosys might get affected as they are heavily driven by Indian workforce, this hence will increase costs for the companies thereby affect the stocks of the IT industry in India. The denial rate for H1B visas has increased from 10% in 2016 to 24% in 2018 and it has been predicted that this will be affected further with Trump in power. This will lead to a fall in stock prices for the top IT industry.
Pharmaceutical Industry:
Along with the IT industry getting affected, the pharmaceutical industry, companies like Dr Reddy Laboratories, Sun Pharmaceuticals, Lupin Limited, etc is equally affected by the elections. India is the biggest pharmaceutical exporter, US accounts to 31% of it, with Trump as the leader, he wants to reduce the prices of drugs in America as many Americans are charged for the same drug at a much higher cost by American pharmaceutical companies as compared to Indian pharmaceutical. Thereby giving a leverage for India to increase their exports which kept the stock prices of the pharma industry high. But under Trumps new tenure, all companies will have to reduce their price of drugs being sold in America, this will increase the competition for Indian pharma companies, thereby reducing exports and causing a fall in stock price as a whole.
Automobile industry:
Donald Trump in his speeches has promoted usage of fossil fuels rather than electric vehicles, this will lead to a decrease in demand for EV components from India, affecting suppliers like Sona BLW, SAMIL, etc causing a fall in their stock prices. Even though he is against EVs, Trump wants to implement a policy for boosting infrastructure for transportation in America, this will thereby increase exports for Indian automobile companies like Bharat Forge & RK Forging, thereby increasing the stock prices and benefitting the automobile industry partially. Companies like TATA Motors, Mahindra & Mahindra and Maruti Suzuki’s stocks are affected.
Exchange Rates:
The dollar is volatile during the elections and as the dominating currency of the world, it has a direct effect on the Indian rupee. As investors seek to hedge against risk, dollar movements frequently cause swings in the rupee's value. When the dollar strengthens, the rupee depreciates, badly impacting Indian markets, particularly those that rely significantly on imports, such as oil and gas. A weaker rupee increases import costs and inflation, influencing RBI monetary policy decisions. Any hint of increasing fiscal spending in the United States, particularly under a Democratic administration, can have an impact on the dollar-rupee exchange rate. Furthermore, inflationary pressures in the United States may prompt the Federal Reserve to raise interest rates, attracting foreign investment back to the United States and thus reducing FII (Foreign Institutional Investor) flows to Indian stocks.
Foreign Direct Investment:
Indian markets rely largely on foreign direct investment (FDI) and foreign portfolio investment (FPI) from the United States, and election results in the United States have an impact on these investment flows. For example, pro-business regimes tend to promote increasing FDI and FPI, whereas ambiguous or restrictive regulations may limit these investments. The relationship between the United States and India is important in this context. Strong bilateral ties, particularly under pro-India administrations, stimulate increased investment, as shown throughout Trump's tenure. In contrast, under administrations that impose harsher rules, such as corporate tax increases, FPIs may fall, putting selling pressure on Indian markets. However, developing areas in India, such as green energy and infrastructure, can draw US investors under a Democratic leadership that values sustainability. Thus, sector-specific FPIs might provide a buffer for Indian markets at such times.
Volatility Index:
Elections cause higher volatility in stock markets and as for the US, Trumps policies will have a direct effect on investors settlement as the volatility index tends to rise due to the uncertain changes in the market. High volatility index correlates with market dips where investors become more alert and pickier while trading stocks. For the Indian stock market, due to the US elections, volatility increases which causes a temporary outflow of funds from equities to safer assets like gold. This shift affects various sectors like finance, manufacturing and consumer goods which affect the global market dynamics.
Federal Reserve and Interest Rates:
The U.S. Federal Reserve's monetary policy actions, notably interest rate modifications, have a considerable impact on the Indian economy and, as a result, the Reserve Bank of India's (RBI) interest rates. When the Federal Reserve raises interest rates, the interest rate disparity between the United States and India may grow. This could draw foreign investors to the United States, resulting in a capital outflow from India. In contrast, it’s drop can narrow this gap, thereby bringing foreign investment to India. Fed rate increases may strengthen the US dollar, making it more expensive for India to import products and services. This may rise to inflationary pressures in India. It’s drop can also weaken the US dollar, making imports less expensive and thus alleviating inflationary pressures.
In conclusion, Donald Trump's policies have a mixed influence on the Indian stock market, presenting both obstacles and opportunities. While his protectionist policies and immigration restrictions harmed industries such as IT and pharmaceuticals, the US-China trade war and improved US-India relations created opportunities for growth in manufacturing and defence. Currency fluctuations, investor mood, and short-term volatility were major topics during Trump's presidency, highlighting the interconnectedness of global markets. As India works to strengthen its economic fundamentals and diversify its trade partnerships, the lessons from Trump's policies remain applicable. The event demonstrated the importance of resilience and adaptability, with the Indian stock market's performance reflecting both the demands and opportunities of a globally integrated economy.
Comments