Trump’s Second Term and Economic Agenda:
- Donald Trump has been re-elected as the 47th President of the United States for a second term after a four-year gap.
- His policies include extending personal tax cuts, reducing corporate tax rates and imposing a 60% tariff on China.
- Overall, his policies are likely to widen the US fiscal deficit and increase inflationary pressures.
- India could benefit from any re-orientation of global supply chain away from China.
- Trump’s plans to reduce energy prices by increasing US fossil fuel production could also benefit India.
- Strict immigration policies may impact India’s IT sector.
Impact on Indian Capital Markets:
- The Fed is likely to slow rate cuts under Trump’s administration.
- In the near term, elevated UST yields will put upward pressure on domestic yields.
- The RBI may start rate cut cycle in FY25 if food inflation moderates, easing pressure on Indian yields over the medium term.
- A stronger dollar and FPI outflows have led to the rupee’s depreciation to a record low.
- India’s healthy forex reserves should help the RBI manage rupee volatility.
- FPI inflows into India are expected to return once Trump’s policies become clearer.
- Inflows from India’s inclusion in global bond indices may also support the rupee in the medium term.
- Key factors to monitor include tariff implementation and China’s response, which will shape market dynamics.
