How will Donald Trump’s comeback impact India’s economy and stock markets?

The recent US presidential election outcome, with Donald Trump poised to retake office, brings significant implications for the Indian economy and stock markets.

Trump’s return could impact various sectors in India, from technology and defence to trade and currency exchange. His policies on trade protectionism, manufacturing, and foreign policy are likely to have mixed effects on India’s economic landscape, depending on specific industry sectors.

At a town hall in Michigan during his presidential campaign, Trump called India “a big abuser” of free trade, when asked about international trade. He clubbed India with China and Brazil and said these countries were “tough” in dealing with the United States.

How the Indian stock market reacted to Trump’s win

Indian equity markets have already responded positively to Trump’s win.

The market marked a second consecutive session of gains on November 6. The Nifty surged past 24,500, with strong buying activity seen across sectors, particularly in IT, real estate, oil & gas, and power stocks.

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By the close, the Sensex had climbed 901.50 points, or 1.13 per cent, to reach 80,378.13, while the Nifty advanced 270.75 points, or 1.12 per cent, ending at 24,484.

Many market analysts suggest that clarity on the election outcome could help stabilise market volatility, bringing focus back to economic fundamentals. Emkay Global’s analysis indicates that a Republican sweep in the US may trigger further gains in US equity markets, potentially creating a ripple effect for Indian stocks.

Foreign institutional investors (FIIs), who offloaded shares worth Rs. 1 lakh crore since October 1, 2024, may reverse this trend if Trump’s victory stabilises global market sentiment. The broader impact on Indian stocks will largely depend on how Trump’s policies influence the global and domestic economies in the coming months.

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Indian sectors that may gain from Trump’s win

India’s export sector, particularly in manufacturing, could experience significant gains due to Trump’s policy on imposing tariffs on Chinese products. India’s exports to the US have almost doubled in the last decade, reaching $77.53 billion, according to data from the Centre for Monitoring Indian Economy (CMIE).

A continuation of these tariffs could make Indian manufacturers more competitive in the US market, benefiting sectors such as auto parts, solar equipment, and chemicals.

Further, with Trump’s anticipated return to fossil fuel-friendly policies, Indian oil and gas companies like HPCL, BPCL, and IOC may benefit from lower global energy prices, as these policies could potentially slow down Chinese economic growth and reduce oil demand.

Indian defence companies such as Bharat Dynamics and HAL are also likely to gain from Trump’s push for defence spending and US-India defence cooperation. The Indo-Pacific strategy may further facilitate defence equipment trade between the two nations.

The defence sector has prevoiusly seen gains under Trump’s first term, with him increasing US defence spending and signing key defence agreements with India, including the Communications Compatibility and Security Agreement (COMCASA) and Basic Exchange and Cooperation Agreement (BECA).

Will Trump’s win weaken the Indian rupee?

However, a Trump presidency may also come with its challenges, including inflationary pressures. Trump’s tax cuts and increased fiscal spending may lead to a stronger dollar, causing global capital to flow into US assets and increasing yields on US bonds.

Such a scenario could weaken the Indian rupee, raising the cost of imports, particularly oil. This would create inflationary pressures in India, impacting both businesses and consumers.

The last time Trump was in office, US markets outperformed Indian markets, with Nasdaq gaining 77 per cent compared to Nifty’s 38 per cent. Analysts caution that while a Trump presidency may initially boost Indian markets, prolonged policy uncertainties could create instability.

What different sectors in India may see during another Trump term

Technology & IT

The Indian IT sector, one of the largest employers in the country, could face challenges due to Trump’s stance on immigration. During his previous term, Trump’s restrictions on H-1B and L-1 visas increased denial rates, significantly impacting Indian IT firms reliant on these visas.

Many companies, however, adapted by hiring locally in the US and increasing green card applications. While Indian IT giants like TCS, Infosys, and Wipro are better prepared to withstand visa restrictions, continued policies against outsourcing could increase operational costs and limit talent mobility.

Banking & Finance

Indian banks and financial institutions benefited from Trump’s first term due to his tax cuts and economic growth initiatives.

Banks like HDFC Bank, ICICI Bank, and Axis Bank experienced positive growth during 2017, aided by both the Indian government’s digitisation push and financial inclusion programs.

Automobiles

The auto industry, too, benefited during Trump’s previous term, as the US sought affordable vehicle imports.

Indian automakers like Maruti Suzuki, Mahindra & Mahindra, and Tata Motors could see sustained demand, as Trump’s protectionist policies encourage a shift away from Chinese imports.

What about Trump’s overall approach to US-India relations?

Former Indian Ambassador to the US, Taranjit Singh Sandhu, expressed optimism about the continuity in India-US relations, regardless of Trump’s often confrontational approach.

Sandhu, quoted by CNBC TV18, reflected on his experiences with the Trump administration, and stated, “The long-term relationship between the United States and India…not only will continue but will deepen further.” He highlighted collaboration in defence, technology, healthcare, and energy as central to the partnership’s growth.

Also Read: Will Trump impose tariffs on India?

Indian-American communities, especially those engaged in knowledge sectors, play an essential role in fostering these ties, which Sandhu sees as beneficial amid evolving trade and immigration policies.

Although challenges around immigration and tariffs may persist, Sandhu suggested Trump’s “deal maker” approach could create avenues for negotiation.

For Indian markets, the main takeaway from Trump’s victory is the potential for increased volatility but also significant sectoral opportunities.

With inputs from agencies