Trump Out, Biden In – What Should Indian Investor Do Now?

Published by Sharekhan Education | December 1, 2020

Trump Out, Biden In – What Should Indian Investor Do Now?

Had it been the India of the pre-liberalisations period, the US Presidential elections would have hardly influenced the way our financial markets performed. Other than being an occasion to update our General Knowledge, this event would be considered nothing more.

The Indian GDP stood at $266 billion in 1991. Also, most sectors and hence the financial markets were insulated from external factors. By the time our then FM Mr. Manmohan Singh was delivering his budget speech in 1991, India’s Forex reserves had plummeted to just Rs. 2500 Crore ($1.1 billion). Also, India’s per Capita Income stood at just $300 then.

From being nowhere in GFP ranking, India is today in the top 5 economies of the world. By 2019, India had already become the 5th largest economy with a nominal GDP of $2.94 Trillion, which placed it ahead of countries like England and France. It is being predicted that India would be 3rd largest economy in the world by 2050.

Liberalisation and economic reforms initiated in 1991 are responsible for this drastic change. We have reached a stage where from being a mere General Knowledge event, the outcome of the US Presidential Elections impacts a host of companies and their profitability to a great extent.

Infact, while you are reading this, there is a transformation underway in the American White House. Donald Trump has made way to Joe Biden as the 46th President of America. In the long run, it may not make much of a difference to the Indian economy and the various businesses that work closely with America, but in the immediate and short term, some sectors and businesses may find things changed.

So, how does the US Elections impact Indian equity markets?

First, a change of guard brings a change in certain policies. This impacts some of the businesses. However, things may normalise in the long run, let us understand some of the sectors and businesses that may be impacted due to the change of guard at the White House.

Let us look at some of the sectors in India that will be impacted by US Election results.

IT Sector

On one hand, increased taxes could impact Indian IT companies as the spending of US companies in Banking, Financial Services and Insurance sector would drop, but the likely withdrawal of the H1B cap will support Indian firms.

Stimulus offered by Biden to the American economy is likely to weaken the US dollar. This will lead to a stronger Rupee. A stronger Rupee leads to reduced repatriation of funds especially in software services. Hence the key stocks in the Indian IT sectors may perform much better.

Pharmaceuticals

With a budget of close to $750 billion, Biden is likely to call for a revamp of the healthcare service and renewed focus on vaccine research. This bodes well for Indian Pharma sector as it represents a greater opportunity to grow the generics business in US. Key Indian companies involved in production of generics may benefit from this.

Auto components

The likely revival of US economy will lead to greater spends by Americans. Also an additional budget of $400 billion for transition to cleaner technologies may sound like music to Indian auto component maker.

Renewable Energy

Biden’s focus on renewable energy will lead to a greater requirement of capital goods and related products. India being a ready supplier, things look upbeat in this department. Indian companies involved in clean technology and components may benefit immensely by this.

Cement & Steel

Biden is likely to allocate a massive budget worth $ 2.4 trillion for infrastructure development. This means Indian companies involved in manufacturing of steel, cement and other allied articles may see a surge in demand from the US.

Just like the Trump Presidency, Biden too is likely to keep China at an arm’s length distance. This is likely to benefit Indian companies and hence the Indian equity market positively. However, unlike the Trump trade “blockades” there could be trade “negotiations” which may squeeze profitability of companies. But the increased business volumes are likely to take care of this.

To sum it all, the Biden Presidency appears to be an opportunity to not only strengthen the Indo-US trade relations, but also an opportunity for Indian investors to benefit by targeting specific sectors. However, make sure that you consult your financial advisor before investing as some of these sectors are very volatile and you may want to avoid or minimise your exposure there.

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