
Trump 2.0 likely to bring short-term pain to Indian stock markets
US tariff hikes could trigger market volatility, particularly in export-driven economies, until effects become clear; Indian equities may be resilient: Experts
As Donald Trump gears up for his presidential inauguration on January 20, global financial markets are bracing for potential turbulence.
Indian stock markets, in particular, find themselves at a crucial juncture, poised to navigate both challenges and opportunities amid economic uncertainty.
The ripple effect of Trump's policies, particularly his stance on trade, is expected to reverberate through the global economy.
One of the most significant concerns is the possibility of the US imposing 60 per cent tariffs on China, the world’s second largest economy, which could ignite a trade war with far-reaching consequences.
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'Short-term volatility'
“US tariff hikes could cause short-term global market volatility, particularly impacting export-driven economies like Germany, China, Canada and Mexico until the effects become clear," Vishranth Suresh, founder of AssetPlus, told The Federal.
"Despite these potential challenges, Indian equities remain relatively resilient."
"Indian equities continue to have strong earnings growth projections for FY25-FY27 and may be relatively more resilient on the back of the strong structural growth of the economy," added Suresh, whose company AssetPlus runs an online platform for mutual fund distributors.
'Trump trade'
Trump's protectionist trade policies are expected to lead to higher inflation, which may prompt the US Federal Reserve to shift away from its dovish stance or, if not, slowdown rate cuts.
This, in turn, could push up bond yields and strengthen the US dollar. As bond yields rise, investors may divert capital away from emerging markets like India, seeking better returns in the US, say financial.
“A 'Trump trade' has already emerged, with rising US bond yields, a stronger dollar and funds flowing back to the US," Vidya Bala, Founding Partner and Head of Research and Product at investment research platform PrimeInvestor, told The Federal.
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"In India, FPI outflows of around Rs 2 lakh-crore have been recorded between October and January, as markets adjust to Trump’s policies and anticipate his future actions,” she added.
FIIs may troop back to India
However, experts believe that the initial volatility is likely to subside, with market sentiment expected to improve in the next fiscal year.
"India may struggle to attract foreign investments until March due to rising oil prices and protectionism. However, by the first half of FY26, as the US addresses its economic slowdown, the dollar will weaken, bond yields will drop, and inflation will ease, drawing FIIs back to India," G Chokkalingam, Founder of Equinomics Research, a stock research firm.
“Even with sub-7 per cent GDP growth, India’s performance will remain among the fastest globally, and FIIs’ past profits in India will further encourage their return,” he added.
Select Indian sectors
While market volatility is likely in the short term, certain sectors in India stand to benefit or remain insulated from the impact of Trump's policies.
"Sectors like banking, agriculture, consumption and IT services in India are likely insulated from Trump's policies, with favourable valuations in certain pockets. However, industries tied to China or East Asian supply chains may face trade disruptions,” Bala explained.
The outlook for commodities remains uncertain. While Trump may support fossil fuels, renewable energy policies could accelerate, and China’s economic performance will play a significant role in shaping industrial commodity prices, she further said.
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Small-cap stocks
“Banking and pharma are set to do well, with banking showing double-digit credit growth and pharma benefiting from rupee depreciation and continued US imports,” Chokkalingam noted.
For those seeking growth opportunities, small-cap stocks offer considerable potential.
"Small-cap stocks offer significant growth and value opportunities, with many deep value stories. The small IT sector, seeing frequent acquisitions, is likely to continue this trend as large IT companies underperform,” Chokkalingam added.
Friday markets performance
India's benchmark indices fell on Friday (January 17), with IT stocks under pressure and foreign outflows adding to the decline, amid concerns surrounding Trump's incoming administration.
The Nifty 50 dropped 0.47 per cent to 23,203, while the BSE Sensex shed 0.55 per cent to 76,619, posting a weekly loss of around 1 per cent.
Meanwhile, US stocks rallied, concluding a strong week fuelled with optimism around the country’s economic health.
The S&P 500 and Dow Industrials posted their largest weekly percentage gains since early November, while the Nasdaq notched its best week since early December.