Do it yourself

Post the election results, thousands of experts – research analysts, economists, strategists, geopolitical experts, money managers, etc. – have written reports running into millions of terabytes, forecasting the likely impact of Trump's victory on financial markets, currencies, commodities, geopolitics, and trade etc. Most of this analysis is based on Trump's election promises, speeches and policy measures initiated during his previous tenure (2017-2021).

Most Indian brokerages have also published reports on the impact of Trump’s victory on the Indian markets and businesses. The most common view of the Indian analysts appears to be that Trump regime may benefit Indian businesses, especially those competing with China.

Speedy implementation of BioSecure Act may benefit Indian CDMO services providers. Higher duties on Chinese imports may make Indian merchandise exporters to the US more competitive. Continued tax concessions may lead to higher discretionary budgets of the US businesses, resulting in more deals for the Indian IT services companies. The conflict in the middle east Asia will likely intensify further leading to higher budgetary allocation for defense in most countries. This may benefit the defense related manufacturing and services. Besides, a weaker USDINR may also boost local currency revenue for them. There may be pressure on the current account. Inflation may become stickier due to higher imported inflation. Interest rates may, therefore, remain elevated for longer than previously estimated.

I do not possess any competence to comment on international affairs and the impact of the regime change on the global markets, trade and geopolitics. However, I would like to share my views about the impact on India.

First of all, I would like to draw the attention of the readers to two points.

1.    During the election campaign the Prime Minister Narendra Modi had extensively spoken about the 100 days plan of his third term. He promised that he has directed all his cabinet colleagues to prepare a detailed development plan for execution in the first 100 days of his third term. Its more than 150 days since his re-election and we do not hear any mention of that 100 days plan now.

2.    President Putin, in an interview to LeFigaro in May 2017, had shared his impressions about the US Presidents. In my view, he was not far from reality. He mentioned—

“I have already spoken to three US presidents. They come and go, but politics stay the same at all times. Do you know why? Because of the powerful bureaucracy. When a person is elected, they may have some ideas. Then people with briefcases arrive, well dressed, wearing dark suits, just like mine, except for the red tie, since they wear black or dark blue ones. These people start explaining how things are done. And instantly, everything changes. This is what happens with every administration. Changing this is not easy, and I say this without any irony. It is not that someone does not want to, but because it is a hard thing to do.”

In my view, it is too early to make any intelligent forecast about the likely policy direction of the Trump administration. It would be in the interest of investors to wait till the 20^th January 2025, when Mr. Trump moves to the White House and makes his first moves. I would not be surprised if Mr. Trump takes a few months before alluding his thoughts on the policy changes.

Hazarding a guess, I would say that the direction of the US policies is unlikely to change in any material measures under the Trump administration. If at all, the jingoistic rhetoric may rise and we may see acceleration (or deceleration) in the execution speed of certain measures to suit the political expediency of Mr. Trump.

Insofar as India is concerned, I anticipate the following in the next 24 months:

·         The surface tension between the expanded BRICS and the US may intensify; though underneath a wider reconciliation may emerge with the US granting several concessions to China, Russia, Iran, India etc. Several multilateral institutions like the UN and IMF may continue to weaken.

·         The USD may continue to remain a dominant currency for the next four years, but its share in the global trade may continue to decline at a pace seen in the past decade.

·         There may not be any adverse change in the H1-B VISA policy towards skilled workers. There could be changes in the automatic US citizenship rule for the children born to the non-permanent resident parents in the next four years. This may not have any impact on the Indian economy or markets.

·         The Trump administration may engage with President Putin to de-escalate the situation in Ukraine. A successful de-escalation may ease sanctions on Russia, normalize energy and food trade in Europe. This could have a positive impact on Indian inflation and exports.

·         In the past 4 years, Russia and China have come much closer as compared to the previous presidential term of Mr. Trump. The recent peace in the Sino-India relation has also been likely brokered by Mr. Putin. The US trade policies are taking cognizance of this and are already less aggressive towards China. This de-escalation of trade and currency war may continue, although at a gradual pace, in the next four years. The US may not impose as aggressive tariffs on Chinese imports as currently estimated. Though, the Trump administration may seek measures to reduce the trade deficit with China. This policy of reducing trade deficit might also apply to India, as we also run over a US$40bn trade surplus with the US.

·         The BioSecure Act may see accelerated implementation, helping the Indian CDMO/CRAMS players.

·         The neutral rates for the US economy are presently estimated at 3.0-3.25%. This level has been rising for the past six months. We may see a further rise in this level, implying the Fed rates bottoming at a much higher level than previously estimated. This will reflect on the emerging market currencies and rates. The Indian currency may witness more depreciation and bond yields may not correct much below 6% in the next four years.

For now, I do not see any need for a change in my investment strategy due to the regime change in the US. I continue to expect more challenging times for the Indian equities in the short term (6-9 months). The stocks in the popular categories (clean energy, EV, defense, railways, PSE, etc.) have corrected sharply, but still trade at elevated valuations. The consumption remains in the slow lane and sectors like media and realty (consequently building materials) are also showing conspicuous signs of slowdown. Credit growth has also shown some signs of slowdown in September-October. I therefore continue to remain in a “wait & watch” mode, looking for better opportunities.