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Results of the 2024 US Presidential elections indicate that Trump and the Republicans are likely to gain control over all the three branches of the US Government. Trump is also likely to win the popular vote, something he was unable to do in 2016. This will result in: (1) lower corporate taxes for local manufacturing, a positive for US businesses. It will also drive capex and jobs. However, this can also increase the US fiscal deficit and keeps interest rates high; (2) higher tariffs on China and the rest of the world could be inflationary. This could also lead to retaliatory tariffs from trade partners, leading to a slowdown in global growth; (3) lower involvement of the US in geopolitical conflicts and Trump’s push for oil & gas can bring down crude oil prices; (4) increased influence over the Fed to lower rates (however, the inflationary nature of his policies might not allow room for rate cuts); and (5) a stronger US dollar

* Looks like a Republican clean sweep: Having comfortably surpassed the minimum requirement of 270 seats, Trump and the Republican Party have emerged victorious in the 2024 US Presidential Election. The Republicans have also secured a majority in the US Senate (major advantage for policy proposals) and are inching forward to gain a majority in the House of Representatives. This implies that Trump’s plans for tax cuts, levy of tariffs, healthcare reforms and energy policy, have a higher probability of getting implemented.

* Revisiting Trump’s proposed policies: Trump’s policies are relatively expansionary in nature. He has indicated his preferences for: (1) lowering tax rates for corporates (especially those manufacturing in the US from 21% to 15%) (2) ~60% or higher tariffs on imports from China and 10-20% on the rest of world, (3) mass deportation of illegal immigrants, which could impact labour supply, (4) Cut aid to Ukraine, curb participation in NATO, while continuing to support Israel and the protection of Taiwan, and (5) increased influence over the Fed. We believe his policies could lead to higher interest rates, a strong US dollar and a slowdown in global growth.

* What does this mean for various sectors in India: NBFCs and Banks: Given interest rates in India are unlikely to come down in a hurry, the expectation of NBFCs outperforming banks may not hold. PSU banks could be a relative beneficiary. Insurance: Negative at the margin for Insurance given near term rate cuts by RBI would be unlikely. IT Services: Trump, in his previous stint, tried to curb the H-1B visa programme. His policies led to increased H-1B rejection rates, higher H-1B/L-1 visa processing charges and wage inflation for H-1B resources. That said, India IT Services players are more insulated now from such anti-immigration policies as all players have ramped-up local hiring in US. Majority of their US employees are now not dependent on visa (local/green card holders). Pharma: Promotion of local manufacturing is on Trump's agenda but so is lowering cost of drugs. The read through here is that dependence on China could be reduced. While some innovation-related projects may shift to USA or other countries like Korea. Indian CDMOs stand to gain on a low base. Trump is unlikely to repeal the Affordability Care Act. At present, this is neutral for pharmaceutical sector China + 1 players: A Trump win and increased tariff on China imports would mean China+1 de-risking can accelerate and may benefit Indian chemicals, EMS, auto ancillary, wires & cables, tiles, solar cells and module exporters. Textile: A stronger US economy under Trump could improve retail sentiment and the potential imports of apparel from India. Real estate: Delays in rate cuts in India could impact demand at the lower end of the real estate market. Commodities: Commodities witnessed steep tariffs in Trump's previous tenure, effectively disrupting efficient price discovery. With regionalism and ring-fencing in commodities picking pace, metal prices could inch up under a Trump regime.

A ‘Red’ wave

Having comfortably surpassed the minimum requirement of 270 Electoral College votes with a tally of 295, Donald Trump has emerged victorious in the 2024 US Presidential Election. Trump is also leading in both States where counting is underway (Nevada and Arizona). The Republicans are also likely to win a majority across all the branches of the Congress including the Senate (majority already called) and the House of Representatives (majority yet to be called, but highly likely). The President of the United States, coming into office with control over the Senate and House of Representatives implies higher chances of Trump’s agenda getting implemented. This is likely to facilitate Trump’s plans for tax cuts, extensions of the 2017 TCJA proposals, healthcare reforms, energy policy and implementation of tariffs on China and the rest of the world. The Senate’s powers also include confirming the appointment of Cabinet nominees and judges (in Trump’s last term he appointed 234 federal judges, including three Supreme Court justices, and may try for more in his coming term).

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