Venkatesh Balasubramaniam: It depends on the sector. You cannot take any broad judgements on one candidate is better for the markets. There are certain sectors where it would be better if Kamala Harris comes to power and for certain sectors, it would be better if Trump comes to power. Just to highlight a few such sectors, we personally believe that for some sub-sectors like NBFCs, a Democrat outcome would be better. Even when it comes to something like insurance companies in India, a Democrat outcome would be better because a Democrat outcome means status quo. It would lead to Fed rate cuts.
And given the recent slowdown in India, you could also see potentially rate cuts by the RBI and that would be beneficial for NBFCs. It would be beneficial for insurance companies. Meanwhile, Trump’s position of imposing higher taxes on China, which is almost 60% or more, could be beneficial for the likes of exporters from India, which could be wires and cables companies, solar module exporters, even tile exporters from India, and even chemical companies. So, it depends on the sub-sector. You cannot take broad calls just on the overall market.
But rather than equity market, there is a lot of action when it comes to the bonds as well as currency market right now. What do you think a Trump vs Kamala win will mean for currencies as a whole?
Venkatesh Balasubramaniam: As I already told you, a Democrat outcome would mean status quo. While Trump coming in, his policies are more expansionary. He is talking about tax cuts in the US, bringing down corporate taxes from 21% all the way to 15%, especially for companies who would have local manufacturing in the US. Now, obviously, this is expansionary. This will lead to lower revenues that could increase public debt. This basically means that interest rates could be higher and we are also talking about a stronger dollar.
So, Trump coming in basically implies higher interest rates in the US and globally and it could also mean a stronger US dollar. Last but not the least, if Trump does implement all these tariffs, there could be retaliatory tariffs from the EU and from China and globally, that could slow down growth. So, could have a multitude of impacts if Trump comes through as the president.
So, assuming that Trump wins the US election, which are the top two sectors that could benefit the most and which are the top two sectors that could get impacted the most?
Venkatesh Balasubramaniam: I mean, on the benefit side, most probably it is basically the likes of wires and cables, it is tiles. Chemical companies could benefit a lot, auto ancillary companies could benefit a lot. Now, on the negative side, obviously, a Trump victory could be negative for the likes of NBFCs. It could be negative for the likes of insurance companies in India. On the IT side, I believe over time, what has happened in 2017, Indian IT services companies were extremely dependent on offshore workers to service the US demand. But according to our IT analysts, now the situation has kind of flipped. They have hired a lot of resources locally in the US. Per se, we do not believe that the IT services numbers will get impacted. But as you know Trump coming in could be a sentiment negative, given that there are quite a few IT stocks which are trading almost one standard deviations above the mean, so in a negative sentiment even though business might not get impacted and with the backdrop of FII selling some of these IT stocks could also correct.
And if on the other hand, Kamala Harris wins the US election, which are the top two sectors that could benefit the most and the two sectors that could get impacted the most?
Venkatesh Balasubramaniam: I mean, Kamala Harris coming through obviously has a positive impact for the likes of pharma because her Medicare for All bill is very positive for pharma, so that means status quo, pharma companies have been doing quite well, which is also reflective in the stock prices over the last year, year-and-a-half, so we think that will be beneficial for pharma. We also believe that NBFCs who have a fixed rate asset book in a declining rate cycle could do very well. So, these are two sectors which could do very well under the Harris regime.