“President Donald Trump’s US election victory is positive for India, while Trump’s America First approach means a more bilateral rather than multilateral approach to foreign policy. In Asia, he is likely to maintain an aggressive stance towards China. Countries will be pressured to take sides, increasing the risk of polarization. If overall sentiments are taken into account, the majority believe that Trump 2.0 will have a negative impact across Asia. However for India; Despite short-term disruptions, medium-term gains for India are offset by supply chain shifts as China de-risking strategies gain further momentum under Trump 2.0.
Impact on interest rates: The FED will continue to follow its policy which is in collusion with the US government, although many believe that interest rates will be lower with Trump 2.0. I expect US bond yields to rise, which may influence the US Federal Reserve’s plans to cut interest rates.
US and Indian markets rise: There is widespread belief that Trump, given his anti-China and pro-Russia stance, may be more favorable towards India than Kamala Harris. However, potential issues remain, particularly related to trade and tariffs. Broadly India stands to benefit especially in Critical and Emerging Technology (ICET), GE-HAL engine deal, initiatives to de-risk the supply chain from China.
Indian Rupee hits all-time low: As we have seen, the US election results are likely to cause short-term volatility in both the secondary markets and likewise the forex markets. Gradually as the volatility subsides, the market will come to its senses and then further USD-INR impact can be assessed. In the broader term, the Indian Rupee appears to be headed for further downside in the short to medium term, with further weakness likely to continue if tariffs under Trump 2.0 are reciprocated.
Fund flows: Trump’s victory could reenergize the dollar and revive investor interest in US assets, which, in turn, could increase foreign portfolio outflows from India to an extent. But this view may not be true as India becomes a more strategic partner to counter China through the Quad, I believe India needs to be supported in the areas of manufacturing, technology in defense and more global competence centers Will receive more FDI. “This is what FDI versus FII will look like in the medium term.”
