Trade Tensions, Strong Dollar To Swell Volatility In India As Trump Wins Second Term
The former US President had been campaigning to impose a reciprocal tax on countries like India if re-elected.
Former US President Donald Trump's comeback in the 2024 election saw a surge in stocks globally with cryptocurrencies and the dollar on an upward swing. However, Indian stocks are likely to face increased volatility from renewed trade tension and a strong dollar, according to brokerages.
Trade and fiscal policy are two areas that need to be monitored, Nuvama Institutional Equities said, while adding that it is too early to assess the implications of Trump's second term.
If Trump escalates trade tensions from bilateral to multilateral, it will hit global trade and economic growth and push prices higher, Nuvama said. Any attempt to raise fiscal deficit could send yields and the dollar higher.
India’s exports could slow further if these actions come through, and any hardening in dollar and bond yields could delay the RBI’s rate cuts, Nuvama said. "This could potentially increase volatility in equity markets as the earnings momentum is slowing and valuations are quite elevated."
Donald Trump has been elected the 47th president of the United States, Associated Press, Bloomberg News and Reuters reported, after he bagged majority electoral votes. Kamala Harris later conceded and told supporters to accept her election loss.
The former US President had been campaigning to impose a reciprocal tax on countries like India if re-elected. Trump also criticised India for imposing high tariffs on foreign goods.
India and US economic partnership has become stronger across different US administrations, Citi Research said. "It is likely that there will be broad continuity in developing these relationships."
However, a stronger dollar could be negative for FII inflows for India, which is also impacted by the drivers of rotation trade into China, Citi said. Impact of trade policy uncertainty is relatively lower as listed universe has limited exposure to goods trade with US, it said. "Medium term, we believe domestic consumption/investment growth trends will dictate India earnings."
A confirmed Trump presidency and higher odds of a Red sweep have led to a global risk-on rally, Emkay India Equity Research said in a note. "But underlying fundamentals suggest there is more steam to the volatility and Trump trade."
In medium-term, watch out for structurally higher volatility in global inflation and growth ahead, it said.
For India, financial stability may precede inflation management and a wait-and-watch approach for RBI. Trump's victory makes a December rate cut call tricky, leading to a shallower rate-cut cycle, it said.
The Indian rupee may depreciate significantly as a result of Trump's victory in the US 2024 election, DAM Capital Advisors said in a note. As India comes under the designation of a currency manipulator, it could trigger retaliatory tariffs from the US, the report said.
This would be particularly detrimental to key export sectors like auto components, textiles, and solar modules, which could face higher costs and reduced competitiveness, the report said.
