Donald Trump's political journey has been one for the history books—full of major milestones, controversies, and a series of challenges that have marked his presidency. As of November 2024, at 78 years old, he is set to become the oldest U.S. president in history, surpassing Joe Biden's previous record. Trump's rise to power was remarkable not just because he was an outsider, but also because of his resilience in the face of multiple challenges, including legal battles and political controversies. Notably, Trump is the only president in U.S. history to have been impeached twice, yet still managed to be re-elected. These impeachments—one over Ukraine dealings and another for incitement of insurrection—did little to hinder his political clout. Instead, they solidified his position as a leader who continues to defy political norms.
The 2024 U.S. Election and Its Impact on Indian Markets
As the 2024 U.S. presidential election unfolds, Indian markets are again feeling the ripple effects of global political transitions. Historically, U.S. elections have triggered short-term volatility in Indian markets, primarily due to shifts in foreign institutional investor (FII) sentiment and global trade concerns. During Trump's presidency, the U.S.-China trade war had far-reaching effects on global markets, with India caught in the middle of the escalating tariffs between the two largest economies in the world. This ongoing conflict brought both challenges and opportunities for India, impacting its exports, IT sector, and long-term trade policies.
Here’s a deeper dive into how India’s markets have reacted, and what investors should keep an eye on.
Impact on Indian Exports
The U.S. imposing heavy tariffs on Chinese goods opened the door for Indian exporters to step in and fill the void. Sectors such as textiles, pharmaceuticals, and electronics saw a significant boost as the U.S. sought alternative suppliers. India, with its robust manufacturing capabilities, benefited from this shift in global trade patterns. However, the situation was not entirely in India’s favor, as Indian exports to China were negatively impacted by retaliatory tariffs, especially in industries like agriculture and chemicals.
Boost for India’s IT Sector
Trump’s America First policy, which included stricter visa regulations like those for the H-1B visa, introduced a degree of uncertainty for India's flourishing IT sector. Indian IT companies, which had long relied on U.S. outsourcing for revenue, faced challenges due to tightening regulations. Despite these hurdles, the global trend toward supply chain tightening, combined with an increased need for outsourcing, created new opportunities for India. India became an even more attractive destination for IT services, BPO, and software development. Although regulatory changes posed challenges, India’s IT sector remained resilient and found new avenues for growth in the global outsourcing market.
Long-Term Impact on Trade Policies
Trump's aggressive trade policies were aimed at reducing the U.S. trade deficit. While these policies sparked short-term volatility, especially in 2018 and 2019, they also led to structural shifts in global supply chains. As the U.S. and China engaged in retaliatory tariffs, India emerged as a key alternative for businesses looking to reduce their dependence on China. India’s manufacturing sector particularly benefited as companies sought to diversify their supply chains to mitigate the risks of overreliance on China.
Foreign Direct Investment (FDI) Trends
Despite the initial market fears surrounding Trump's victory in 2016, India’s market showed remarkable resilience. Foreign Direct Investment (FDI) remained stable, and sectors like infrastructure, defence, and energy saw positive sentiment from investors. Trump's “America First” policies, which led to a degree of de-globalization, created a shift that Indian companies, especially those in manufacturing and IT outsourcing, were quick to take advantage of. The stability of India’s market, despite global uncertainties, showcased the country’s ability to adapt to shifting global dynamics.
Past U.S. Elections and Their Impact on Indian Markets
2020 Election:
The 2020 U.S. presidential election saw a more optimistic response from Indian markets, particularly following Joe Biden’s victory. Post-election, the Sensex rallied nearly 2%, driven by expectations that stable U.S.-India relations would benefit sectors like IT and pharmaceuticals.
2016 Election:
Trump's unexpected victory in 2016 initially triggered a sharp sell-off in Indian markets, with the Sensex dipping as investors grew concerned about his stance on international trade. However, as time passed, markets rebounded, demonstrating the resilience of India’s economy even amid political uncertainty.
Pre-Election Trends in India: FII Sell-Offs
As the 2024 U.S. elections drew closer, Indian markets experienced heightened volatility. Both the Nifty50 and Sensex saw significant declines in the weeks leading up to the elections, primarily driven by FII sell-offs. In early November 2024, the Nifty50 fell by approximately 490 points, while the Sensex dropped by about 1,500 points. This was largely due to geopolitical uncertainty and concerns over potential shifts in U.S. policies regarding inflation, interest rates, and trade.
Election Day and Immediate Reactions
On Election Day, the Indian market continued to fluctuate due to uncertainty surrounding the outcomes of U.S. policies. Investors, especially in sectors like IT and pharmaceuticals, closely watched for any indications of changes in U.S. healthcare and trade policies, as these could significantly impact Indian exports and currency stability. As results came in showing Donald Trump gaining an early lead, markets reacted positively. U.S. futures and Asian markets opened higher, driven by investor optimism. The U.S. stock markets saw a significant rally on Election Day, with the Dow rising 427 points, the S&P 500 climbing 70 points, and the Nasdaq gaining 260 points, signaling confidence in policy stability despite earlier uncertainties.
The Fed Rate Decision and Its Global Impact
The U.S. Federal Reserve’s rate decision on November 6, 2024, further contributed to global market volatility. A 25 basis point (bps) rate cut was largely priced in, and investors anticipated that lower rates would inject liquidity into the market, potentially supporting short-term growth. However, tighter U.S. monetary policies could lead to capital outflows from emerging markets like India, signaling that Indian investors should remain cautious as they navigate these global economic shifts.
"As Donald Trump prepares to take office as the US President, it will be interesting to see how markets react. Will investors shift from selling to buying, given the potential impact of his policies on the economy, expected rate cuts, inflation, and other factors? Only time will tell how the policies unfold."
