US election results: What does Donald Trump victory mean for Indian stock market, FIIs, economy

The US election results are nearly finalized, with former President Donald Trump set to reclaim office. What does his victory mean for the Indian economy and domestic equity markets? Market watchers believe Trump’s victory could drive increased spending in the US, potentially keeping inflation elevated. Additionally, a stronger dollar and heightened trade barriers may also be expected.

Anitha Rangan, Economist at Equirus, noted, “More than who wins, a clear result will be more of a relief to the markets, which have been in a volatile mood predicting the outcome. This could translate positively for India as the country’s trade relations with the US remain robust.” On Wednesday afternoon, the benchmark equity index BSE Sensex was up by 682 points, or 0.86%, reaching 80,159.

Rangan added that clarity on the election results could also help stabilize markets by curbing volatility and bringing focus back to fundamentals. There are expectations that the recent heavy outflows by foreign institutional investors (FIIs) may start to reverse. Since October 1, 2024, overseas investors have offloaded shares worth Rs 1 lakh crore.

“India’s fundamental strength remains robust. The correction or adjustment led by outflows in the past month should therefore reverse. In the medium to long term, positive outcomes should emerge from India’s constructive relations with both the USA and Donald Trump,” Rangan said, noting that a slower-than-expected US rate-cutting cycle could result in a similarly shallow rate-cutting cycle for India.

On the other hand, Nitin Aggarwal, Director of Investment Research and Advisory at Client Associates, remarked that a Republican-led government under Trump could significantly reshape trade dynamics, with increased tariffs and a more protectionist stance on international trade.

Data from the Centre for Monitoring Indian Economy (CMIE) shows that India’s exports to the US nearly doubled over the past decade, reaching $77.53 billion.

Aggarwal added that a key focus of Trump’s previous presidency was reducing the US trade deficit, a policy heavily reliant on increasing import tariffs. “For India, the consequences of such a policy shift could be twofold. First, sectors like pharmaceuticals and information technology may face challenges. Indian generic drug manufacturers could encounter increased tariffs on exports to the US, impacting the pharmaceutical industry. Similarly, India’s IT sector might see a slowdown in demand, as a trade war and economic slowdown could reduce discretionary spending in the US,” he explained, adding that a delay in US interest rate cuts to combat inflation might weaken foreign portfolio investment (FPI) flows into India.

Aggarwal further noted that any delay in rate cuts by the US Federal Reserve could have a ripple effect on India’s monetary policy. “With the Reserve Bank of India already facing slowing economic growth, any delay in rate cuts could exacerbate challenges in managing domestic inflation and bolstering investment sentiment,” he said.