How will Donald Trump's second term as US President play out for Indian equities?
Any changes to tariffs, trade agreements, or visa policies (especially H1-B visas) can impact Indian IT services and other export-oriented sectors.
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Now as we are through Donald Trump's inauguration and Trump 2.0 has kicked off without much clarity on his likely economic decisions. Analysts perceive that any delay in the implemenation of tariff hikes by Donald Trump will bode well for Indian equities as the dollar index as well as the 10-year bond yield will likely come under pressure.
Nonetheless, what is more important for Indian equities is a pick-up in India's GDP as well as corporate earnings
As per domestic brokerage ICICI Securities, after Trump won in 2016, Nifty's 6-month return was at 9 per cent, while the broader markets outperformed with Smallcap and Midcap indices delivering 22.6 and 18 per cent, respectively.
Primarily, the Trump administration mostly focuses on expansion and this time the focus will be on reducing tax rates to boost production in the US. Moreover, large tariffs expected to be imposed on China again are resulting in increased concerns of a global trade war.
Here's how analysts expect Trump's second term to play out for Indian equities
Trump is set to become the 47th president of the United States as he takes the oath of office later today. President-elect Trump is preparing to issue more than 100 executive orders starting Day One of the new White House.
Devarsh Vakil, Head of Prime Research, HDFC Securities remarked, "Most active global investors are positioning themselves ahead of a series of policy shifts expected under the incoming Trump administration. The uncertainty surrounding potential economic policies under a Trump administration are a challenge for emerging markets like India in 2025."
Any changes to tariffs, trade agreements, or visa policies (especially H1-B visas) can impact Indian IT services and other export-oriented sectors.
US policy shifts around foreign investment and offshoring can affect capital flows into Indian markets, added Vakil.
Meanwhile, G- Chokkalingam- Founder- Equinomics Research added that Donald Trump's second term as the US President would have some adverse impact in short term. But beyond a couple of quarters it would not have any major impact, he noted.
Further he believes that the US cannot antagonise both most populated countries in the world for political reasons;
Tightening import of cheap goods would inflate cost of living for Americans. It would reduce consumer spending and would ultimately lead to deflationary signs in the US;
Also, tightening import of IT Services would lead to higher costs for US corporate and thereby their profitability would be impacted. Hence in the medium term, say beyond 2 quarters, US would be forced to dilute its protectionism stand on India. Moreover its stress in trade relations with India is not as big as China, which generated around $1 trillion of overall trade surplus and out of $361 billion of surplus was generated from the US alone in CY2024. As compared to the burden on trade relations with China, stress with India is negligible. Hence heavier protectionism measures are expected on China rather than on India, noted the expert.
Moreover, Vakil also mentioned that Trump's "America First" approach may lead to increased tariffs on imports, potentially affecting Indian export-driven sectors such as textiles.
However, India's strategic importance and potential shifts in global supply chains might attract investments in areas like defense technology, pointed out Vakil.
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