"Donald Trump's victory will have a mixed impact on Indian markets"

Trump has historically taken a confrontational approach to China. This could indirectly benefit India’s manufacturing sector, as global companies seek alternatives to China, asserts Deepak Jasani, Head of Retail Research at HDFC Securities.

October 2024 saw record-high net equity investments by mutual funds despite market challenges. What factors, in your opinion, are driving this resilience among mutual fund investors?
Investors have witnessed that dip buying has benefitted them over the past few years as a fall in indices has been followed by a bounce and often new highs. This has emboldened them to continue investing even when the downtrend seems to have begun. Also, investors seem to have started to follow the wise advice of investing legends to get greedy when others are fearful.

The increasing global influence on Indian markets is undeniable. With the recent U.S. election where Donald Trump was elected as the President for the second time, what consequence could this outcome have on key Indian sectors like tech, finance or pharma?
The outcome of the U.S. election and the election of Donald Trump as President for the second time could have a mixed impact on Indian markets though the positives could outweigh the negatives. We think that actual action by Trump may be less than threatened/expected.

Trump has time and again mentioned high tariffs levied by India on imports, any retaliatory action may impact exports by Auto Ancillaries, Textiles and other sectors. Trump’s “America First” stance implies a renewed scrutiny on trade deficits and outsourcing, that could impact Indian IT services, which generate over USD 15 billion from the U.S. alone. The potential reduction in H-1B visas could inflate hiring costs and impact the competitiveness of Indian tech firms.

A Trump win should strengthen the USD as capital flows back to the US, pressurising the Rupee. This would affect sectors reliant on imports - such as oil, machinery, and electronics - by driving up input costs. However, exporters like pharmaceuticals, textiles and auto parts manufacturers could benefit, given that a weaker rupee enhances global competitiveness. FPI investments in India could partly flow out.

High tariffs on imports into the U.S. could lead to a rise in inflation (that will be exported to countries like India) and high interest rates. This will again strengthen the USD and increase the attractiveness of U.S. stocks and other assets. China could try to react by weakening the Yuan. This could create more pressure to weaken the INR.

Trump has historically taken a confrontational approach to China. This could indirectly benefit India’s manufacturing sector, as global companies seek alternatives to China. Trump has shown an inclination towards strengthening defence partnerships with allies, and India could emerge as a significant defence partner.

If Trump renews his focus on job creation in the U.S., we could see policies that reduce outsourcing or tax American companies that move production abroad. For India, this could impact sectors such as textiles, automotive components, and consumer durables, with exports to the US potentially declining.

With interest rates cut by the Federal Reserve, what role should debt instruments play in a balanced portfolio for retail investors?
Any portfolio should have a good mix of different asset classes, though their weight could be altered from time to time. Given that the interest rates globally are on the way down, debt values and NAVs of debt MFs could rise going forward. Also given the soft outlook towards equity over the next 1-2 quarters, a higher allocation towards debt (with a corresponding reduction in equity by taking profits) is recommended. However, if Trump increases tariffs on imports into the U.S. across the board and more on Chinese imports in particular, the U.S. could witness higher inflation which could be exported out to other countries, and then the rate of fall in interest rates may slow or in worst case even reverse.

Thematic and sectoral funds are becoming increasingly popular among investors. What is your outlook on these offerings? How does HDFC Securities manage risk in such investments?
Select sectoral and thematic funds have given handsome returns over the last few years and NFOs of these are well received. However, the fact remains that these are more risky than the normal equity funds and we keep educating the investors about this aspect time and again so that they do not end up investing in funds that do not suit their risk appetite. These funds have a window of performance and one has to be diligent and lucky to be right about timing the entry and exit.

Considering that crude oil prices remain low, how do you anticipate this will affect sectors like transportation, manufacturing, and utilities in India?
Lower crude oil prices are beneficial to Indian macros and select industries. Automobile and paint companies may be the biggest beneficiaries of this, while the impact on Oil & Gas and chemical companies will depend on other parameters like trend of spread, refining/marketing margins, inventory level changes etc. Gas-based power plants may see higher utilisation and profitability. An incentive to shift to EV/ethanol may be reduced.

However prolonged low crude prices may lead to a slowdown in the global economy as the spending by the oil-producing companies and countries may slow down materially. This may have an impact on industries that are dependent on exports out of India.

India’s growth trajectory looks promising but is not without global risks. What economic indicators do you believe are key for investors to watch in 2025 to better understand market conditions?
For the next few quarters, investors will do well to track interest rates and inflation in the U.S. and India and the India GDP numbers for Q2, Q3 and Q4 of FY25. Apart from this, they may also track the geopolitical developments across the globe and political developments in India. These may have an impact on the trajectory of Indian economy and markets.

How do recent regulatory changes by SEBI influence the transparency and security of retail investing? Are there further regulatory updates you think would be beneficial for the sector?
SEBI has been taking measures to improve the market structure by increasing transparency and better protecting the retail investor. After a series of such measures, it may allow these to take proper and sufficient effect and tweak them to improve their delivery. Some period of consolidation may be necessary. One area where SEBI needs to work upon is IPO pricing where it needs to keep balancing the freedom to issuers on the one hand and protecting the investors from exorbitantly priced IPOs (more so in the case of new age companies)

What role do you see for digital platforms and fintech in improving access and education for retail investors, particularly in smaller cities and towns?
Digital platforms and fintech companies can help in educating investors across India and more so in smaller towns and cities. Investors in these places are vulnerable and need to be educated on risk-return trade-offs in different investment avenues. However, they need to be careful not to have their own commercial agenda in doing this as this may create a bad name for their industry and dissuade investors from accessing their offerings even from an education perspective.

While these entities are commercial and have to show rising top and bottom lines, they need to have patience and realise that credibility built over time will bring in stickiness and more than compensate them for their efforts over the medium term.

Disclaimer: The opinions expressed above are personal and may not reflect the views of Dalal Street Investment Journal.