US Election 2024: Elected Government Faces Balancing Act With India, China, Says Sridhar Sivaram

The United States faces a delicate balancing act when it comes to its relations with both India and China, according to Sridhar Sivaram, investment director at Enam Holdings Ltd. Regardless of which side wins the political battle in the US, it may not necessarily spell disaster for India, he said.

The broader takeaway, according to Sivaram, is that Washington must avoid antagonizing both the Asian giants, as they both play crucial roles in global trade and geopolitics.

The potential political shifts in Washington may have ripple effects on sectors, especially in areas like pharmaceuticals, Sivaram told NDTV Profit. A Republican administration could spell trouble for the big pharmaceutical companies, which could inadvertently benefit India’s generic drug manufacturers. If bigpharma faces restrictions or regulatory pressure, it could open up opportunities for India, as the generics market might boom, Sivaram said.

While the Indian IT stocks seem to be thriving in the short term, the larger beneficiary for the sector is the rise of artificial intelligence, said Sivaram. AI could have far-reaching implications for Indian tech companies, especially those in outsourcing and software development. The rapid adoption of AI technologies globally could either disrupt or transform business models in the tech space.

AI is likely to have a much larger effect on Indian tech than any immediate political shift, Sivaram said, referring to the need for Indian companies to evolve quickly to stay competitive in an increasingly automated world.

Turning his attention to US fiscal policies, Sivaram compared the likely outcomes under different political administrations. With Kamala Harris in power, fiscal policies could lead to smaller deficits, while a Trump administration may result in larger budget shortfalls. Regardless of who wins, Sivaram is concerned that both paths will lead to ballooning national debt, which could fuel inflation.

Emerging markets, once seen as high-return asset classes, are losing their appeal, according to Sivaram. Investors have become increasingly disillusioned with the returns from these markets, particularly in the context of the rising risks and geopolitical instability. "Emerging markets just aren't delivering the kind of returns investors are expecting," he said.

Foreign institutional investors are pulling back from these markets, further exacerbating the situation, said Sivaram. "If you're allocating a significant portion of your portfolio to emerging markets and not seeing returns, the question becomes, 'What's the point?'".

Looking ahead to the next quarter, Sivaram forecasts significant challenges for the financial sector, particularly for non-banking financial companies, microfinance institutions, and small finance banks. These segments are likely to face massive earnings downgrades, with the upcoming quarter expected to be particularly painful. "I think the next quarter is going to be a disaster for many of these financial institutions," he said.

Conversely, Sivaram maintains that large banks are better equipped to withstand the current financial challenges. "The larger banks seem like a very safe bet right now."