Trump’s win spurs a rally in India, boosting investor wealth by ₹7.75 trillion. But will it have legs?

Mumbai: Former US president Donald Trump’s return to the White House fuelled a market rally in India on Wednesday, propelled by technology stocks, riding hopes that his pro-business stance will spur spending and growth in the world’s largest economy.

Indian benchmark indices, which tracked global peers to rally by over 1% each amid trends pointing to Trump’s victory, could extend their rebound from recent lows on institutional short-covering and fresh buying in information technology counters, according to some analysts. This, however, may not last long, they said.

On Wednesday, though, the market rally added ₹7.75 trillion to investor wealth in India.

Experts say Trump is expected to cut corporate tax rates in his second term as US president next year, which could lead to increased spending, benefiting Indian technology services companies. 

Besides, the US Federal Reserve seems set to cut interest rates for a second time since September, which is also expected to boost spending. The US Fed, which is meeting today to deliberate on its monetary policy, will announce its decision on 7 November.

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However, if tax rates are lowered, the US government could borrow more, which could result in higher inflation in the US and push up bond yields there even if the US Fed cuts its policy rate. This would result in fiscal and monetary dichotomy, according to some analysts who are guarded on the long-term effects of Trump’s victory.

“A Trump win could boost Indian market sentiment in the very near term, but that won’t be a long-lasting move—at best a week or 10 days before fundamentals take over,” said ace investor Shankar Sharma. “The markets are priced to perfection and with Q2 earnings having largely missed Street estimates, room for correction remains. We might be in for a rough quarter.”

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A global rally

In India, the benchmark Nifty 50 gained 1.12% to settle at 24,484.05 points on Wednesday while the Sensex rallied 1.13% to end at 80,378.13 as early trends pointed to Trump becoming the US’ 47th president. 

The rally was driven by domestic institutional investors (DIIs) buying a provisional ₹4,889.33 crore and retail purchases, per analysts. Foreign institutional investors (FIIs) sold a provisional ₹4,445.59 crore, BSE data shows. 

The Nifty rally was fuelled by India’s IT giants including Infosys Ltd, Tata Consultancy Services Ltd and HCL Technologies Ltd, besides Reliance Industries Ltd and Larsen & Toubro Ltd. These five stocks alone contributed about three-fifths of Nifty’s 270.75 points rally on Wednesday. 

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The Indian markets weren’t the only ones to cheer Trump’s win.

 With the exception of Hong Kong’s Hang Seng index, which fell 2.23% on fears of heightened tariffs on Chinese exports to the US, Germany’s Dax traded up 0.4% and the French CAC was up 0.8%. Japan’s Nikkei 225 gained 2.61%.

Dow futures pointed to a 1,000-point-plus gap-up for the underlying index, trading at 1,336 following the Trump win.

The ambivalent Trump trade

Nifty and Sensex have both headed toward correction territory, which is defined as a 10% fall below highs. As of Wednesday, the Nifty traded 6.8% below its record high of 26,277.35 points, while the Sensex traded 6.5% below its all-time high of 85,978.25.

Wealth erosion led by selling by foreign portfolio investors (FPIs) since last month’s record high was to the tune of ₹25 trillion as of Wednesday. The market cap of 5,525 firms on Tuesday stood at ₹453.86 trillion, down from ₹479.10 trillion after FIIs sold shares worth over ₹1.1 trillion in the cash market last month.

This month, too, FIIs remain net sellers of ₹10,645 crore through 5 November. While DIIs have made up for this selling by FIIs, most FPIs and prop traders are net short on index futures. 

Trump’s win could result in these being covered, resulting in a rebound of oversold markets, but unlikely for long, said analysts.

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 “A Trump victory may give a short-term boost to global markets, but we will have to wait and see,” said Nilesh Shah, managing director of Kotak Mahindra AMC. 

“Trump has announced a higher tariff imposition on Chinese goods. India could be a beneficiary if we capture some share from our Himalayan neighbour. We will have to wait and watch how US policy evolves after the elections rather than taking a pre-committed position as politicians can talk left and walk right,” he added.

Madan Sabnavis, chief economist at Bank of Baroda, agreed with that view.

“There is a lot of ambivalence on the so-called Trump trade. On the one hand, he says he will strive to keep interest rates and, by token, the dollar low to increase American exports. But in the same vein he talks about cutting corporate tax rates and raising tariffs by 20% on imports from other countries and even more from China,” Sabnavis said. 

“This will stoke inflation for Americans and result in bond yields rising there, which could lead to further FPI outflows from emerging markets.”