What does Donald Trump's return as US President mean for Indian businesses and markets?

Donald Trump’s return to the White House as the 47th President of the US has sparked a lot of discussions about potential implications for global trade and India's economy.

But why is it a hot topic of discussion for India?

The USA is India's largest export destination, accounting for 18% of India's total exports in FY24.

Since the Indian economy is closely tied to the US economy, any policy changes in the US can have a far-fetched impact on the Indian economy. It can reshape the trade flow, alter global alliances and even affect the capital flows.

So, these are the biggest questions right now:

• What will be the impact of the second term of Trump’s presidency on the Indian markets?
• Which sectors could be impacted and in what way?
• How will India negotiate Trump 2.0?

Let us examine the impact of Trump's second term on India’s stock market, economy and sectors.

Economy and trade relations

As a matter of fact, we are aware of Donald Trump’s ‘America First’ agenda, encouraging US-based companies to boost domestic manufacturing, while reducing reliance on imports. Trump’s US- focused trade measures could press India to lower its trade restrictions. This can likely increase tariffs on a range of imports from India, particularly those competing directly with American products. Indian exporters, especially in sectors like pharmaceuticals, IT, and textiles, could face higher tariffs.

However, Trump’s anti-China stance can have a positive impact on India. His intention to raise tariffs on imports from China could indirectly benefit India. India could emerge as an alternative viable destination for US companies looking to diversify their supply chains and relocate operations to low- cost destinations. It can open up US markets for Indian electronics, metals, chemicals, textiles, and auto components.

Nomura’s report also signals a positive outlook for India, opening new opportunities as a strategic partner and attracting more investment and trade.

Geopolitical dynamics

During his first term, Trump emphasised strengthening bilateral ties with key international partners, including India, especially in defence, technology, and trade. His second term is likely to deepen the geopolitical engagement with India, leading to mutual growth opportunities for both countries. Strengthened US-India ties can likely benefit Indian businesses in sectors like pharmaceuticals, defence, IT, and manufacturing.

Market impact and foreign institutional investment (FII) flows

Trump’s second term brings a wave of optimism to the Indian stock market, particularly in areas that benefit from his pro-business agenda and global trade policies.

His proposed plan to reduce the corporate tax rate from the current 21% to 15% can create a market-friendly environment across global markets, including India. Goldman Sachs estimates, a 4% rise in S&P 500 earnings from this proposed tax cut.

As seen in his previous term, his deregulation efforts, tax cuts and corporate-friendly policies are likely to foster optimism across the globe, leading to increased global liquidity and heightened investor interest in emerging markets like India.

We can expect increased foreign institutional investment participation in the Indian stock market, which can further boost demand for Indian equities and strengthen market sentiment.

Decoding sectoral impact

Trump’s return is expected to enhance US-India defence cooperation and bolster India’s military capabilities. India’s role as a strategic defence partner can give a significant boost to defence-related Indian businesses. It can improve the sourcing of hardware and technology for defence and aerospace.

Trump’s focus on building energy independence could further improve US-India energy partnerships.

His emphasis on domestic oil, gas and coal production could contribute to stabilising global oil prices.

India being a major oil and gas importer, can largely benefit from a reduced import bill. Oil marketing companies and city gas distributors are expected to benefit from lower oil prices.

Besides, Trump’s emphasis on domestic infrastructure development and economic growth is likely to drive demand for commodities such as metals and energy products, creating opportunities for Indian companies across mining, energy, and agricultural sectors.

Trump’s restrictive immigration policies can impact Indian IT firms that depend on H-1B visas for staffing their US operations. Restriction on the movement of Indian talent to the US could increase operational costs for Indian IT firms, as they might have to employ local staff on-site.

Whether we can expect the visa rules to relax or tighten, only time will tell!

But the positive side is, Trump’s reduced reliance on Chinese tech firms, particularly in telecommunications and cybersecurity could benefit India as US firms seek to diversify partnerships in high-quality, cost-effective outsourcing destinations.

With US companies prioritising innovation in areas like artificial intelligence, cloud computing, cybersecurity, and 5G, Indian IT services firms are well-positioned to collaborate and tap on this opportunity.

What do the next four years hold?

All in all, Trump's potential second term presents a mixed outlook for India with both, opportunities and challenges.

The next few months will set the stage for how the US government progresses with its economic agenda and how Indian markets and businesses will respond to it.

We surely have four interesting years ahead of us.