Trump Effect: How Will Indian Stocks be Impacted?

Now that Donald Trump has been inaugurated as the 47^th US President, financial markets around the world will now turn their attention to his economic policies.

On his first day back in office, Trump did not make many big economic decisions bit some of his moves will have an effect on markets.

These include directing the US bureaucracy to focus on controlling cost of living (inflation), reviving the US energy sector (oil & gas), and withdrawing from the Paris Climate Treaty (renewable energy).

Having said that, Trump is just getting started. There will be a flood of decisions taken by not just him but his cabinet appointees as well, that will impact financial markets in various ways.

The Indian stock market will be impacted too.

Traders might remember the days when Trump was the US President last time. His tweets and unscripted comments could make the markets move sharply, resulting in either profits or losses depending on the direction of the trade.

Every Indian trader and investor is looking out for clues about the next move in the Nifty and how Trump's policies will drive individual stock prices.

In this editorial, we will cover the potential impact of Trump's policies on Indian stocks.

#1 IT Stocks: Infosys, TCS, Wipro, HCL Tech, and Tech Mahindra

Let's address the elephant in the room first.

IT stocks have been under scrutiny ever since Trump won the election. This is understandable.

Last time Trump was US President, investors were concerned about US visa policies and immigration issues. It's the same this time as well. In fact, the H1B visa debate has become heated in the US.

Mostly, Indian IT firms managed these issues quite well last time. This was thanks to the policy of starting software development centers in the US and creating jobs there. This strategy could be employed again to avert any negative consequences of US immigration policies.

Thankfully, Trump is focused mostly on illegal immigration this time as opposed to all kinds of immigration last time. In fact, her has even spoken in favour of H1B visas.

Thus, the next four years should not see too much concern on this front for investors in Indian IT stocks.

However, this topic can become a risk if Trump were to take a hardline position on legal immigration even from friendly countries.

#2 Electronics Manufacturing: Dixon Tech, Amber, PG Electroplast, and Syrma SGS

This is one sector that is likely to do well over the next four years.

Apart from the long term megatrend driving these stocks, there is potential for short term upside too.

Trump's threat of imposing tariffs on China could hasten trends like China plus one and friendshoring. We could see further shifts in global supply chains which could be favourable to countries like India.

With companies looking for alternative manufacturing bases outside China, India stands to benefit from this geopolitical shift.

The leading EMS firms in India - Dixon Tech, Amber Enterprises, PG Electroplast, and Syrma SGS Technology - are well-equipped to capture the demand for cost-effective and high-quality manufacturing alternatives.

#3 Renewables: Tata Power, Waaree Energies, Websol Energy Systems, and Suzlon Energy

Just like last time, Trump has taken the US out of the Paris climate accord. He also began the process of ending US government policies providing subsidies and tax benefits to renewable energy firms.

In contrast, he has given a huge boost to oil and natural gas firms by getting rid of his predecessors' restrictions on the sector.

Trump's preference for traditional energy sources could disrupt the momentum in renewables. This could potentially impact sentiment surrounding these stocks in India.

Indian renewable energy firms with operations in the US or exporting to the US, like Tata Power, Waaree Energies, Websol Energy Systems, Suzlon Energy, will have to adjust to the new reality by finding alternate markets or by focusing more on the Indian market.

There is also Adani Green Energy which is dealing with a US court case. Only time will tell how that plays out for investors in the stock.

#4 Textile: Welspun Living, Raymond, Alok Industries, Sutlej Textiles, and Kitex Garments

This is where tariffs come in to the picture. Trump has threatened to impose tariffs on many countries if they don't abide by his conditions for trade.

One of the biggest Indian exporting industries to the US is textiles. Many Indian textile firms rely on US firms to buy a large amount of their production.

These firms are at risk of trade wars.

Now we are not saying that the US will engage in any trade war with India. It just that the mere threat of tariffs will be enough to dampen sentiment around these stocks.

These companies won't find alternate markets quickly if they lose their US business. It's also not possible for these companies to invest in the US to mitigate the threat of tariffs the way IT companies can. This is due to the high cost of labour in the US and textile is a labour intensive industry.

Thus, investors will have to keep a close eye on these stocks.

#5 Pharma: Dr Reddys, Sun Pharma, Cipla, Aurobindo Pharma, and Divis Labs

This is a complicated one. On one hand, the US needs low cost generic drugs from India. On the other hand, Trump does not like India's intellectual protection for pharma patents.

US pharma firms, especially the innovator firms, complain about unequal treatment. Trump could use the threat of increased regulations via the USFDA, and/or tariffs to hurt the Indian pharma sector.

The man Trump has put in charge of healthcare administration in the US, Robert Kennedy is a bit of a wildcard in this regard. India might have to negotiate a deal if things get heated in this sector.

#6 Defence

This is the one sector that everyone is bullish on.

The next four years should be good for Indian defence stocks. This will be due to factors like the Indian government's increased spending on defence, the focus on indigenous manufacturing, potential deals with US defence firms, and increased geopolitical closeness.

There are many Indian firms that have tied up with US firms for technology or manufacturing. These kind of collaborations are likely to increase significantly.

The last time Trump was US President, India purchased many weapon platforms and signed many military agreements with the US. We could see something similar in the months ahead. These deals will also increase India's bargaining power in other sectors.

This could be a big positive for Indian defence stocks that have or are willing to form defence partnerships with US companies. Investors will need to watch this space carefully for potential winners.

Here we are not highlighting any specific stock names because of the huge size of the opportunity There is more than enough room for multiple winners, even multibaggers if the companies play their cards right. Watch this space.

Conclusion

All in all, an interesting four years lie ahead for financial markets.

Navigating Trump's policies as well as his occasional eccentricities will become par for the course.

But such developments should not distract investors from their main job of identifying fundamentally strong stocks trading at reasonable valuations so as to buy them for the long term.

We believe in leaving the politics to the politicians and the news media. Investors should focus on finding fundamentally strong stocks for the long term that are trading at reasonable valuations.

Investors should evaluate these companies' fundamentals, corporate governance, and valuations of the stocks as key factors when conducting due diligence before making investment decisions.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...