Is Donald Trump good for Indian investors? A market veteran weighs in.

Read this | Trump 2.0: How to make your portfolio great again

The Democrats' defeat traces back further than the recent election cycle, to a pivotal moment on 15 August 2021. That morning, I saw images of Afghans clambering onto planes at Kabul airport, US Air Force flights evacuating personnel, and military equipment abandoned amid a rushed exit. At the same time, the COVID-19 pandemic was causing turmoil worldwide, with inflation and unemployment still lingering as consequences.

Former US President Bill Clinton weathered a scandal in the White House largely because he delivered jobs. Trump has tapped into this same sentiment in his election promises, vowing to bolster employment for American citizens.

In an earlier piece, I had mentioned that 2024 would see an unprecedented number of nations hold general elections, the highest in recorded history. Economic data would be polished and inflated, with promises of better lifestyles, reduced inflation, and lower unemployment. A pervasive feel-good sentiment was set to envelop financial markets, and indeed, markets have aligned with this optimistic outlook, validating my prediction.

What lies ahead in 2025, however, is likely a gradual unwinding of this sentiment as reality sets in. This process—when financial asset prices begin to align with the real economy—is known as procyclicality. Since 2020, markets have been distanced from economic fundamentals, fuelled by widespread, unbacked currency printing.

Will this time be any different?

When Donald Trump won the 2016 election, defeating Hillary Clinton, he made bold promises. Under the slogan "Make America Great Again" (MAGA), he pledged to bring US jobs back to American citizens, curb offshoring of manufacturing, and impose higher taxes on US corporations that produced overseas without repatriating profits. He went as far as sanctioning hostile nations, corporations, and even individuals—a striking level of micro-management.

This economic boost effort was dubbed the “Trump reflationary rally" by market analysts. Last Wednesday, it looked as though expectations of a similar rally might challenge my view on procyclicality. Yet, by Thursday, the bulls surrendered all their gains, followed by further losses on Friday.

It’s clear this time is different. History doesn’t always repeat itself.

Soup-to-nuts analysis

Indian investor-traders hoping for a repeat of the US reflationary rallies of 2016-2017 are skating on thin ice. Their current strategy—relying on mere hope—is one of the riskiest approaches in investing. If our markets are to rise, they’ll need to rally on their own momentum. 

COVID-19 has fundamentally altered global trade dynamics, reinforcing localization. Since the 2016 Brexit vote, national leaders have increasingly focused on shielding their economies from external pressures like immigration, cheap imports, and outsourcing.

Trump has already made it clear to US trade partners: if they want access to American markets, they’ll need to reciprocate. He’s a strong proponent of drilling for oil and gas, aiming to generate revenue through energy exports.

Indian investors find some solace in Trump’s assurance of no “boots on the ground" in new foreign conflicts. Yet, one must remember that Trump, a businessman with no military experience, evaded military draft five times. Though he may keep troops off foreign soil, the US economy relies significantly on its military-industrial complex, a sector no president can afford to alienate. John F. Kennedy’s attempts to rein it in during the 1960s are a sobering reminder of the potential consequences.

In reality, while there may be no US soldiers on the ground, we could still see “business as usual" with drones, UAVs, airstrikes, and missile operations continuing in the background.

Tel Aviv to Jerusalem

On 6 December 2017, Trump had signed a proclamation officially recognizing Jerusalem as the capital of Israel, relocating the US embassy from Tel Aviv to Jerusalem. This move was largely facilitated by Trump’s son-in-law, Jared Kushner, whose efforts helped cement the decision. 

Trump’s close ties with Israeli Prime Minister Benjamin "Bibi" Netanyahu, head of the Likud party—whose manifesto is explicitly anti-Iranian—added to the diplomatic shift. With Trump reportedly encouraging Netanyahu to “do whatever it takes," any expectation of a conflict-free four years under Trump seems misplaced. In fact, continued hostilities serve to maintain a steady demand for the US military-industrial complex.

As the US has become a major oil and gas exporter, reducing competition from other key players like Iran fits well within Trump’s economic strategy. Iran, a major producer of natural gas and a significant exporter of light sweet crude oil, presents a natural target.

Will Trump’s actions drive oil prices higher by limiting exports from Iran and Venezuela? It seems unlikely. In fact, oil and gas prices may decline. The fossil fuel market is intricate; for every official (on-the-books) barrel sold, there is often a shadow (off-the-books) barrel in circulation. I’ve explored this dynamic in my previous article.

What’s in it for us?

Trump’s loyalty lies with the US, as it should—he has a mandate to fulfil. He will protect American interests in dealings with India and might grant us minor concessions as long as they don’t come at too high a political or financial cost. But let’s not expect miracles overnight.

What’s more concerning are Trump’s moves against China. This is the real issue. If he follows through on imposing tariffs on Chinese goods, as he’s promised, it could spell trouble for India as well. China’s currency peg (renminbi to the US dollar) is tightly controlled. To offset tariff hikes, China may have to devalue its currency, which could push India to devalue the rupee in order to remain competitive in global markets.

One man’s food is another man’s poison

The old saying—what’s good for the goose isn’t always good for the gander—couldn’t apply more here. China is a net exporter, whereas India is a net importer. If the rupee devalues, our imports, especially fuels, will become more expensive. Higher fuel costs drive up the prices of everything, which means higher inflation, increased raw material costs, rising interest rates, and lower profits for companies—all of which depress stock prices. While this may be collateral damage, the impact could be significant.

For more such in-depth analyses, head to Profit Pulse.

Indian stock markets have experienced sharp but brief declines on 4 June, 23 July, 1-15 August, 5-9 September, and 1-7 October. While headline indices quickly rebounded, many retail traders were forced to close their positions due to margin calls. Foreign institutional investors (FIIs) have been selling persistently, with domestic investment institutions absorbing much of the impact. This leaves retail traders as the primary buyers, but they have limited buying power.

Markets are forward-looking mechanisms, and the drop immediately following the election results signals caution. And caution is warranted—it’s time to focus on capital preservation, with profits as a secondary goal. As the saying goes, sar salamat toh pagdi hazaar—keep your head intact, and you’ll have a thousand chances to wear a crown later.

Note: This article relies on data from www.livemint.com.

The information presented here is intended to share intriguing charts, data points, and thought-provoking insights. It is not an investment recommendation. For any investment considerations, please consult your investment advisor. This article is strictly for educational purposes.

About the author: Vijay L Bhambwani is the author of India’s first official commodities trading guide. He designs statistical and behavioural trading models for his family-owned proprietary trading firm. Based in South Mumbai, he has been trading markets since 1986. Follow him on Twitter @vijaybhambwani and on YouTube at www.youtube.com/vijaybhambwani.

Disclosure: The author and his proprietary trading organization have short positions in crude oil and natural gas derivatives contracts discussed here.