The victory of Donald Trump in the 2024 US Presidential elections has sparked a fresh wave of optimism in India, particularly among market analysts and investors. With Trump set to return to the Oval Office, the focus now shifts to the potential economic and geopolitical implications for India, especially in trade, stock markets, visa policies, and foreign investment.
Trade relations
One of the first areas that could see significant changes under Trump’s second term is trade. While the Trump administration has historically pushed for a more US-centric trade policy, India may be forced to adapt to new challenges. The US might press India to lower trade restrictions, particularly in sectors such as IT, pharmaceuticals, and textiles, which are major exports to the US. The threat of increased tariffs looms large, a scenario that could strain Indian industries and disrupt trade flows.
However, a recent report by Nomura suggests that there may be silver linings for India. Despite Trump’s firm stance on trade, India could benefit from his “China Plus One” strategy, which seeks to diversify supply chains away from China and towards countries like India. This policy could open up new commercial possibilities, particularly in electronics and manufacturing.
Stock market
In the short term, India’s stock markets are likely to rejoice at Trump’s victory, with the sentiment buoyed by the potential benefits of the “China Plus One” strategy. Sectors such as IT, pharmaceuticals, and chemicals stand to benefit, with India’s export-friendly policies like the Production-Linked Incentive (PLI) scheme and ‘Make in India’ initiatives making it more attractive to US investors.
However, financial experts caution that Trump’s victory could have a mixed impact in the longer term. “Trump’s victory could drive higher rates, increased gold prices, and a stronger USD, which may not be favorable for emerging markets,” said Sameer Narang, Head of Economic Research at ICICI Bank. A stronger USD, combined with potential tariffs and protectionist trade measures, could dampen global growth, affecting India’s export-driven industries.
Trump’s restrictive trade policies might help maintain robust US economic growth, but it could lead to a stronger global USD position, which might negatively affect India’s currency and equity markets, particularly in the long run.
H1-B Visa Rules: Potential Setbacks for Indian IT Professionals
One of the most anticipated areas of change is the fate of the H-1B visa program, which has long been a gateway for Indian professionals to work in the US. Under Trump’s previous administration, there were efforts to limit the H-1B visa program, and these restrictions could tighten further during his second term. Possible changes could include higher wage requirements for H-1B holders, reduced visa numbers, and prioritization of candidates with advanced qualifications or specialist expertise.
For India, which sends a significant number of skilled workers to the US under the H-1B visa, these changes could have wide-ranging implications. It could lead to a slowdown in the flow of highly skilled labor to the US, although some analysts believe India’s growing tech ecosystem and domestic innovation might mitigate this impact.
Sector-specific opportunities
India’s financial and industrial sectors are also likely to experience varied impacts under Trump’s leadership. While the short-term outlook is positive, particularly for sectors such as IT, pharmaceuticals, FMCG, and private banking, long-term stability will depend on the evolution of US-India policies.
IT and Pharma: With US economic growth remaining strong under Trump, Indian IT firms could benefit from increased demand for services, especially in Global Capability Centers (GCCs) based in India. Similarly, India’s pharmaceutical sector may see increased demand for generics, especially as the US continues to prioritize cost-effective healthcare solutions.
FMCG and Private Banks: The FMCG sector is expected to remain resilient, thanks to sustained rural growth. Private banks, with higher return on equity (ROE) and relatively lower valuations, could outperform in the domestic market.
Defence and Chemicals: India’s defense sector, which has increasingly become a key focus of government policy, could also benefit from growing defense ties with the US. Similarly, the chemicals sector could gain from shifts in global supply chains, especially as India remains a key partner in the US’s diversification strategy.
Geopolitical risks
Despite the optimism, some risks remain. A stronger US dollar, driven by Trump’s policies, is likely to put pressure on emerging markets, including India. Additionally, Trump’s protectionist stance could lead to further tariffs on India, especially if the US perceives India as having a trade surplus or a managed currency.
While India is well-prepared with policies such as ‘Make in India’ and the semiconductor program, the long-term effect of a strong USD and potential trade restrictions could impact India’s overall growth trajectory.
For now, India’s markets are likely to bask in the glow of a Trump victory, but the real test will come as the administration’s policies take shape.
