Trump 2.0: Implications for the Indian Economy and Key Sectors

Donald Trump is set to helm the United States of America for the second time. Let’s take a look at how the Trump 2.0 presidency will impact the Indian economy and our financial markets. 

Broadly speaking, Trump’s main policies include spending on infra, including creating a border wall, protecting domestic industries, and ditching EV goals. Trump has been vocal about imposing tariffs on various countries including India. While that might act as a damper, one obvious benefit that shall accrue to us is Trump’s anti-China stance. This change will give the perfect impetus to the China+1 narrative.

Now let’s talk about sectoral impacts:

• Information Technology: Trump’s anti-immigration stance could hurt the employment plans of Indian IT firms based in the US, as they would be forced to hire locally. Additionally, the Trump administration is expected to bring in tax relief for corporations. This could be a piece of good news for IT firms as lower tax rates could propel IT spending.
  
• Automobile: This should be a mixed bag. Donald Trump is not too keen on the EV story and hence we could see some easing in EV incentives as well as subsidies. Slowing EV sales in the US could have a short-term impact on Indian auto component players that supply components for EVs. That being said, hybrids and ICE vehicles should see good traction under his presidency. Trump has also indicated his disgruntlement with cheaper auto components being produced in China, Mexico, and other regions. If he chooses to increase tariffs on these countries, then we could see a potential shift of the supply chain to India for such auto components.
  
• Pharma: Analysts believe that Trump’s victory should have a neutral impact on the sector. The stakes are slightly higher for the Indian cohort as the US is the largest pharma market in the world and also the biggest trade partner of the Indian pharma industry. In FY24, Indian pharma exports to the US accounted for nearly one-third of our overall pharma exports. However, if one has to go by history, last time around Trump was not too kind to Indian pharma as the industry had faced intense compliance issues and price competition.
  
• Energy: This is going to be interesting, as Trump’s campaign has received funding from the oil & gas industry while being deconstructive towards EVs. Market expectations suggest a major boost to US crude oil and natural gas production. Higher production should lead to lower prices which should bode well for our economy, given the dependence on energy imports.
  

Under Trump’s administration, global markets are likely to take more risks, which could boost Indian stocks. However, factors like slower profit growth for Indian companies, already high stock prices, and rising interest rates in the U.S. might limit how much Indian markets can gain.

In summary, Trump’s second term could bring both challenges and opportunities for India, with potential tailwinds in sectors like IT, defence, and energy, but risks to exports and capital flows due to currency pressures and heightened U.S. tariffs.

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