With the U.S. presidential election now decided and Donald Trump securing a second term, global markets, including India, are adjusting to the new political landscape. During the election period, the India VIX, a key measure of market risk, surged by nearly 27%, reflecting increased volatility and investor caution. This uncertainty has had a ripple effect on major global indices — such as the Dow Jones, Nasdaq, Kospi, Nifty, and Sensex — all of which have experienced recent declines as markets respond to evolving U.S. policies and their impact on the global economy.
With Indian markets deeply influenced by global sentiments, we're experiencing the ripple effects of U.S. policy speculations, fiscal policy shifts, and regulatory changes. This has led to investor caution and a marked slowdown in foreign investment inflows, creating a dynamic that requires a more closer attention.
The Record FPI Outflows: What’s Driving It?
High Valuations: Indian equities have seen substantial growth, which, in turn, has led to elevated valuations. For foreign investors, this means the market is becoming less attractive in terms of potential upside.
Shifting Focus to China: China’s recent stimulus measures and lower stock valuations are drawing global investor interest, especially as the Chinese market shows signs of recovery.
Geopolitical Tensions: The escalating Israel-Iran conflict and rising global geopolitical risks are pushing investors toward safer, more stable assets, reducing the appetite for riskier markets like India.
U.S. Fed’s Interest Rate Policy: The Federal Reserve’s higher interest rates have made U.S. assets, especially bonds, more attractive. This has contributed to capital flowing away from emerging markets like India.
Policy Uncertainty: Global investors are wary of potential shifts in U.S. economic and trade policies, leading to caution around emerging markets.
Despite these headwinds, the downside in Indian markets has been cushioned. Domestic investors have stepped in to offset the outflows, helping to stabilise the markets. As the Fed’s interest rate policy remains under scrutiny, foreign investors are taking a wait-and-see approach, with many rebalancing their portfolios in response to evolving economic conditions.
The Fed’s November Meeting: What’s at Stake?
The upcoming Federal Reserve meeting on November 6-7 will be pivotal for both U.S. and global markets. With the Federal Open Market Committee (FOMC) expected to assess economic indicators such as inflation and employment, there’s speculation about a potential 25 basis point cut to the federal funds rate.
While this move may not be drastic, it could offer much-needed stability to emerging markets like India, which are currently under the pressure of heightened volatility. Additionally, the Fed’s decisions will influence the strength of the U.S. dollar, which in turn affects the Indian rupee, trade, and export competitiveness. A weaker dollar could boost Indian exports, while a stronger dollar might create headwinds for Indian exporters.
How Trump’s Second Term Could Impact Indian Markets
Here’s a closer look at what his second term could mean for Indian investments:
Energy Policies: Trump’s support for fossil fuels may slow down clean energy initiatives. However, it could create opportunities for Indian companies in traditional energy sectors, such as oil and gas exports.
Trade Policies: Trump's potential return to protectionist policies could impact India-U.S. trade, especially in sectors facing tariffs. This could create challenges for Indian exporters but may encourage India to further diversify its export markets.
Manufacturing and Supply Chain Shifts: Trump's tough stance on China may reinforce "China Plus One" strategies, where companies diversify away from China. This could benefit Indian manufacturers as they fill supply chain gaps created by reduced reliance on Chinese manufacturing.
What This Means for Your Portfolio
The evolving U.S. political landscape and the Federal Reserve’s monetary policy decisions will undoubtedly impact the Indian market and, by extension, your portfolio. While global uncertainties may drive short-term volatility, it's important to remember that the Indian market remains fundamentally strong with domestic investors stepping in to stabilise it.
As we navigate this period of heightened uncertainty, rest assured that we are closely monitoring global developments — from U.S. policy shifts to sector-specific changes. Your portfolio is designed to be resilient, with a strategy that adapts to both global and domestic macroeconomic conditions. We will continue to make adjustments based on the evolving landscape, ensuring that your investments remain well-positioned to weather volatility and capitalise on long-term growth opportunities.
Comments