India's Impact on the Next Trump Administration: CNBC's Inside India Newsletter

This report is from the CNBC "Inside India" newsletter, which provides timely and insightful news and market commentary on the emerging powerhouse and the big businesses driving its rapid growth. If you find it interesting, you can subscribe here.

The big story

After being out of office, Donald Trump won the U.S. presidential election, joining a select group of American leaders who have regained the presidency.

As in 2016, investors are facing policy uncertainty due to the president's presidency and what may occur in the upcoming year.

The results are likely to be significantly different from eight years ago, particularly in India's case.

Manufacturing

Trump's "Make America Great Again" campaign seems to conflict with Modi's "Make in India" initiative.

The imposition of taxes on goods imported from China into the U.S. is predicted to benefit India, according to most analysts, as companies move their manufacturing operations to the South Asian nation to avoid tariffs. Over the past four years, global trade has undergone significant changes, with India benefiting from President Joe Biden's decision to retain many of Trump's tariffs on China.

Indian electronics manufacturing services companies could benefit from potential tariff or non-tariff barriers on Chinese imports in the U.S. and India's domestic manufacturing thrust with Make in India, particularly in areas like PCBs, semiconductors, mobile phones, cables and wires, among others, according to Macquarie Capital's analyst Aditya Suresh, who cited cable and wire maker as an example of a stock that stands to benefit in this scenario.

The benefits of companies reorienting their supply chains from China to India may outweigh the impact of universal tariffs on imported goods into the U.S., according to analysts.

During his previous presidency, Trump implemented unilateral measures that targeted India with tariffs, removing the country from a special trade program called the Generalized System of Preferences. As a result, $5 billion worth of exports from India to the U.S. have been subjected to duties since 2019, according to the Observer Research Foundation.

Tax rises and tax cuts

Inflation can be exacerbated by import duties, which can increase U.S. consumer prices. Higher import duties can also drain money from emerging markets, such as India, in the current competitive market climate.

Why invest in high-risk equities abroad when the US offers a 4.5% risk-free annual return?

This month, foreign investors have sold $1.5 billion worth of Indian stocks, on top of the $11 billion they sold in October. The index fell by 6% last month, marking its worst monthly performance since March 2020.

If Republicans gain control of both houses of Congress, reducing the U.S. corporate tax rate to 15% will positively impact U.S. stock markets. However, this may hinder Indian equities from outperforming, as Mumbai-listed stocks begin to struggle to meet earnings expectations.

Immigration

The Indian IT sector will remain protected as long as the new administration's focus remains on "illegal" immigration in the United States. However, if unemployment continues to rise, policy uncertainty becomes a major concern.

If the U.S. remains the dominant end market for IT services and there are any changes to immigration, this could have an impact on the industry, according to Citi economists Samiran Chakraborty and Baqar Zaidi.

These companies, such as , , and U.S.-listed , heavily depend on work permits to hire employees from India in the U.S. However, their reliance on foreign workers has decreased over the years, making them more resilient to changes in visa rules. Moreover, since the Covid-19 pandemic, most companies have reduced their expenses by adopting remote working.

Energy

Moderate to low oil prices are predicted to continue during Trump's second term, according to market observers, who anticipate Indian interests aligning with those of the United States regarding this matter.

New Delhi will likely welcome any move by the U.S. to keep oil prices low, as India imports over 90% of its oil needs.

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While India aims to become a renewable energy exporter, the U.S. election results suggest that this sector may not be in Trump's favor, as indicated by the stock market's reaction.

The shares of a Mumbai-listed wind turbine maker fell after the U.S. election results, despite the company earning only 1.5% of its total revenue from the U.S. and experiencing a 42% growth in sales over the past year, according to FactSet data. Will the company continue to grow in the future?

Sanjeev Prasad of Kotak Institutional Equities stated that the "anti-ESG approach" of the next U.S. administration may not be beneficial for a portion of India's exports, particularly solar panel module manufacturers.

Need to know

Jio, the telecom business of Mukesh Ambani's Reliance Industries, is reportedly planning a 2025 IPO. The company currently has 479 million subscribers and is India's biggest telecom player. According to two sources familiar with the matter, Ambani believes Rio now has a stable enough revenue stream to list publicly. Reliance is aiming to make Rio's listing bigger than Hyundai India's $3.3 billion, which would make it the biggest IPO in India.

The Reserve Bank of India is prepared to handle U.S. volatility, as it has a large buffer of foreign exchange reserves that can be used to defend the rupee, according to two sources familiar with the bank who requested anonymity due to the sensitive nature of the topic. Any new U.S. tariffs against China or a strengthening dollar could lead to outflows in local currency and increase imported inflation.

Goldman Sachs has included an Indian automotive stock on its list of top picks, with Chandramouli Muthiah, vice president of equity research at the bank, stating that the stock has a "unique pipeline" in India's car market and has the potential for a 25% increase within 12 months. This information is exclusive for subscribers only.

What happened in the markets?

The Indian stock index has fallen 0.5% this week, despite rising 11.36% this year.

Although significant advancements have been made, the 10-year Indian government bond yield remains almost unchanged from the previous week at 6.78%.

This week on Biz Focus Hub, HDFC Securities CEO Dhiraj Relli pointed out that Indian markets have been trading at a premium over other emerging markets for the past few years, with a nearly 90% premium. Relli advised investors to temper their expectations, with returns of approximately 12% to 15% being considered acceptable.

VK Vijayakumar, the chief investment strategist of Geojit Financial Services, stated that the recent market correction in India is reasonable because "valuations have been at lofty levels." Nevertheless, he emphasized that he is optimistic about the large-cap private sector banks, whose "valuations are, even now, neither excessive nor unattractive."

What's happening next week?

On Monday, Sagility India will list publicly, while ACME Solar Holdings and food-delivery company Swiggy will trade publicly on Tuesday.

Monitor inflation reports from China, India, and the U.S. in the upcoming week.

November 9: China inflation rate for October

November 11: U.S. consumer sentiment report

On November 12th, the inflation rate in India for October, the industrial and manufacturing production for September, and the Sagility India IPO will be released.

October 13: U.S. consumer price index, ACME Solar Holdings IPO, Swiggy IPO