US Election Results: Trade Tariffs To FPI Flows—What Donald Trump's Win Means For India

Former United States President Donald Trump could be on his way back to the White House, as the results of the US presidential poll so far show he is on the cusp of a historic win.

A Trump win will impact markets worldwide, including India, as the 78-year-old has vowed to steer away from the economic and trade policies of President Joe Biden.

The initial reaction of Indian equity market to Trump's win has been positive, with both the frontline indices, NSE Nifty 50 and BSE Sensex, gaining by a percentage point.

"Donald Trump's win is expected to lift the US markets for a short-period. The Indian indices will also edge higher, but such a rally will be for a limited period. The actual impact of Trump's presidency will be known after he takes charge," said Kranthi Bathini, director of equity strategy at WealthMills Securities Pvt.

The reason behind the market's initial euphoria over a Trump win is that his policies are expected to provide a "short boost" to the US economy, he explained. If the American economy gains momentum, some of the emerging economies will also benefit due to a ripple effect.

An uptick in the US economy bodes well for India, as the country is a major exporter of information technology services, pharmaceutical products, gems and jewellery.

India's total exports to the US in 2024, till August, stood at $54.7 billion, as per official data. The trade ties is balanced in favour of New Delhi, as the amount of imports is nearly half at around $28.5 billion.

This trade surplus may make India one of the targets of Trump's proposal to impose tariffs. In a campaign event on Oct. 11, Trump called India "one of the biggest charger of tariffs" on foreign imports, and promised to reciprocate the measure.

"Trump could significantly reshape trade dynamics, with heightened tariffs and a more protectionist approach to international trade. This will impact Indian sectors like pharmaceuticals and IT," said Nitin Aggarwal, director of investment research and advisory at Client Associates.

Indian generic drug manufacturers could face increased tariffs on their exports to the US, affecting the pharmaceutical industry, he said. India's total exports of pharmaceutical products to the US stood at $8.73 billion in fiscal 2024, according to India Brand Equity Foundation.

A section of analysts, however, believe that Trump's trade tariff policy could be a blessing in disguise for India. This, they say, is because the tariffs will most adversely impact China.

"This will create opportunity for India, and the country is already emerging as an alternative to China," Bathini said.

Notably, Trump has promised a tariff of up to 60% on Chinese imports, along with a blanket tariff of 10-20% on imports from other countries.

"He will definitely impose trade tariffs on China, and this could benefit Indian sectors like manufacturing," Aggarwal pointed out.

Higher tariffs on China are expected to hit the Chinese stock market, which has already been reeling, analysts said. This can act as a deterrent for foreign portfolio investors from moving to China, Bathini said, adding that India stands to benefit in such a scenario.

In a bid to prevent a further slide in its equities market, Beijing could be looking at a stronger fiscal stimulus to keep them attractive. "The stimulus could be higher, if Donald Trump wins the US election," said Priyankar Biswas, analyst of India industrials, logistics and metals at BNP Paribas.

On the flip side, Trump's trade tariffs will make imported goods costlier, thereby increasing the risks of inflation in the US. This, in turn, could delay interest rate cuts by the US Federal Reserve, which is already grappling with persistent inflationary pressures.

"If the US delays interest rate cuts to combat inflation, FPI flows into India could weaken. There is typically a negative correlation between US interest rates and FPI inflows to emerging markets, which could put further pressure on India's capital markets," Aggarwal explained.

As Trump closed in towards a victory in the presidential elections, the Nifty IT index soared on Wednesday. The index was under the watch as the US market accounts for the bulk of the revenue of the Indian IT majors.

The Nifty IT gained by 1,616.1 points, or 4%, to 42,040.7 at 2:25 p.m. According to analysts, this climb was driven by the expectation of increased orders from American clients, as Trump's promise to slash corporate tax will increase their margins.

Trump has vowed to slash the corporate tax from 21% at present to 15%—a move that is expected to benefit some of the top mega-cap firms of the US, who are also key importers of Indian IT services.

However, "one needs to wait and watch to see the actual impact on the IT sector" as to how the trade tariffs play out, Bathini said.

The policy of trade tariffs may lead to reciprocal measures against the US, resulting into trade wars. "A slowdown in US discretionary spending due to trade wars could negatively impact India’s IT exports," Aggarwal said.

Also, some of Trump's economic policies, including his push for lower interest rates, may lead to an inflationary environment. This could pressurise client budgets, and in-turn affect Indian IT services imports, they said.

A Trump presidency, coupled with potential Republican control of the US Congress, could shoot higher yields due to anticipated increases in deficit spending, inflation risks, and potential tax cuts. This could have an impact on the government securities in emerging economies as well, analysts said.

"This (Trump's policies) could very well jiggle the confidence in US treasuries and, thus, start a chain effect that will possibly be impacting global market stability and leading to short-term volatility," said Shrisha Acharya, vice-president, Anand Rathi Global Finance.

This can impact the Indian G-Sec market, as the Trump presidency could "possibly lead to the rise of the US 10-year yields which would, most likely, have a butterfly effect resulting in the rise of the Indian 10-year benchmark yield to above 6.9%," Acharya added.

Some of Trump's top promises, including tax cuts, higher tariffs on imports and deportation of illegal migrant labourers, may lead to inflationary pressures, said analysts. This may compel the US Federal Reserve to slow down its timeline of rate cuts, they added.

Although India has not been strictly following the US cycle of interest rate action, experts think that a pause in the Fed's rate cut cycle may lead to the Reserve Bank of India delaying the process of lowering the domestic repo rates.

"A delay in rate cuts by the US Fed 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 deepen the challenges of managing domestic inflation and boosting investment sentiment," Aggarwal said.