New Delhi:
Donald Trump was elected US president on Wednesday for a second term, marking one of the greatest political comebacks in American history. At 78, the Republican leader defeated Democratic rival Kamala Harris in a fiercely contested election.
Impact Of Donald Trump’s Presidency
Trump’s return to power is expected to have significant implications on global markets, including Foreign Portfolio Investment (FPI) inflows to India. FPIs are foreign entities or individuals investing in assets that are relatively liquid and easily tradeable, such as equities and bonds, typically with shorter investment horizons than Foreign Direct Investment (FDI), which involves long-term business commitments.
Impact on FPI Inflows to India: Historical Trade Disputes Between India and the US
Manish Bandhari, Founder, CEO & Portfolio Manager at Vallum Capital Advisors, pointed out that India and the US have a history of trade disputes, with Trump previously calling India a “tariff king.”
“Under Trump 1.0, India faced US tariffs on steel and aluminium in 2018 and lost preferential trade status under the Generalised System of Preferences (GSP), affecting ~12% of its exports. Despite these issues, India has strengthened ties with Trump, supported by a strong Modi-Trump relationship. Under a Trump 2.0 presidency, we expect a preference to do business with India and a reversal of recent negative FPI flows, driven by supply chain realignments,” Bandhari underlined.
Potential Boost in FPI Inflows to India
Bandhari highlighted that with Trump’s presidency, India could see renewed FPI inflows as trade and economic alignment strengthen. Despite past trade skirmishes, both nations have built a robust partnership, with the US seeing India as a strategic counterweight to China, with considerable synergy in defence, security, clean energy, and people-to-people ties. India too sees the US as an important partner in its economic growth story.
“We believe India is likely to benefit on the foreign policy front under Trump 2.0.”
Sectoral Benefits Under Trump’s Second Term
Trump’s win is set to benefit multiple sectors, Bandhari noted.
The housing and energy sectors, including coal, thermal projects, nuclear projects, and oil drilling companies are poised for growth in the US.
“Discretionary tax cuts may drive higher consumer spending, indirectly benefiting Indian exporters.”
Opportunities and Challenges in IT and Healthcare Sectors
“We see India partnering in affordable healthcare.”
Both the US and Indian IT sectors stand to gain from increased IT investments. However, offshoring might face challenges if Trump encourages more jobs in the US. A cut in corporate tax by Trump is likely to bring more business for the Indian tech companies.
Under Trump’s first term, IT companies grew at a CAGR of 13% during 2016-2020 and the IT index generated a return of 45% despite challenges on visa and offshoring. In healthcare, the Biosecure Act has impacted pharma companies positively.
Long-Term Economic Shifts
In the long term, “we may see capital shifting from bonds to equities, an increase in gold prices due to inflation, and potential INR appreciation as inflation narrows between India and the US.”
Opportunities and Challenges Ahead for India
Trump’s return brings both opportunities and challenges for India. His policy decisions will shape the U.S. investment landscape, while India’s consistent economic performance and reforms can make it an attractive destination for FPIs in the coming years.
