US Elections 2024: With Trump Trade And Fund Flows At Play, Here's How India Is Positioned

Pollsters predict a neck-to-neck race between Republican candidate Donald Trump and Democrat rival Kamala Harris, and bulls are positioning themselves to a rising market, but the electorate will decide whether the bets are on the right side on Nov. 5.

Emerging markets like India have borne the dual brunt of US Elections and Chinese stimulus trade. The secondary market has seen an outflow of over $13 billion in October, while primary market, led by Hyundai Motors India IPO, has seen an inflow of $2.1 billion.

So far, foreign investors have been net sellers of $9 billion in secondary market and net buyers of $10.1 billion in the primary markets in this calendar year. That clearly indicates the portfolio diversification and rotation

While the $13-billion October outflow has been matched equally with the domestic inflows, with mutual funds and insurance companies, speed of profit booking has seen the benchmark indices correct nearly 10% from their highs. Equity mutual funds were sitting on Rs 1.43 lakh crore in cash at the beginning of the month. Mutual funds alone have net invested close to Rs 90,000 crore in the month of October.

Domestic mutual funds were well positioned for Trump and Chinese stimulus trade at the beginning of October. The MF gross sales stood at Rs 1.57 lakh crore in October 2024 (till Oct 28), one of the least monthly gross sales in the last few month. In fact, the domestic institutions have gross sold the least in October, compared to September when gross sales stood at over 2.33 lakh crore. And in doing so, MFs seems to have taken position for these trades at the beginning of October itself.

Retail flows to Mutual Funds have moderated in October, especially the bulk flows, while the SIP flows remained stable during the month.

Trump Trade is seen being good for the US markets. A Trump victory is expected to boost earnings for corporate America, on the back of tax cuts. This has led to sell-off in the emerging markets equities and debt. The Trump trade has seen a strong greenback, Treasury Yield rise and sell-off in equity in the emerging market.

This has translated into weaker rupee, a sell off in India's Debt-FAR securities and equity outflows. A Trump victory is seen positive for the Indian industry as it opens up further opportunities for 'China + 1/2' trade.

The China stimulus has not been effective yet, though foreign funds have positioned themselves for China trade, in anticipation of further stimulus that could be announced as early as November. China valuations, which are now at a discount to India, are more of a driver currently for this trade. Hence, the rotation seen in the secondary market is more a reflection of this trade.

If Harris wins, there is likelihood of significant unwinding of the Trump Trade that would mean weaking of the USD, buying of treasuries leading to falling yields and flight of capital back to emerging markets.

The Japanese Central Bank maintained status quo on the rates at its Oct. 31 meet, even as uncertainties increased and inflation inched higher. The Japanese Central Bank reiterated its intention to raise interest rate when its inflation outlook is realised. It also cited the high level of uncertainties ahead.

The markets have pencilled in a rate hike at its Dec. 19 meet.