Markets likely to weather Trump storm

Experts says D-Street will await detailed policies; IT, pharma may face some heat

Dalal Street is unlikely to see an adverse reaction to Donald Trump’s inaugural speech on Friday, where the 45th President of the United States underscored the protectionist agenda with a ‘Buy American, Hire American’ slogan. However, shares of information technology (IT) and pharmaceutical companies could feel some heat in the short-term, given their high dependence on the world’s largest economy. The rupee and the bond markets, too, are likely to be muted, say experts.  

However, experts say investors will have to brace for high volatility during Trump’s initial period in office, as more clarity emerges from Washington. A clear direction would be a positive for stocks, as markets hate uncertainty, they add.

Shane Oliver, head of investment strategy at AMP Capital, said Trump’s inaugural speech repeated his broad campaign themes around ‘Making America Great Again’, but didn’t spell any detailed policy.

Interestingly, the global markets have had a sharp uptick since the US election results, on hopes of tax cuts and pro-growth policies by the Trump Administration. The Indian markets, too, have rallied around five% from its December lows, with the stemming of foreign outflows. 

“There is no surprise element in Trump’s speech. Markets have already discounted it. I don’t think there should be any further impact on the markets. IT and pharma stocks could see some sentiment impact, but nothing meaningful,” said U R Bhat, managing director (MD), Dalton Capital. “There is an economic rationale to bring jobs to India and, hence, these tighter norms will not work. Even after paying higher wages, companies are still not able to find the right skills and talent in the US,” he added. 

“Trade wars, retaliatory tariffs and barriers to free movement can cause turbulence in global markets. One needs to closely watch the detailed fleshing out of Trump’s policies over the next few days to gauge the exact impact,” said Ajay Bodke, chief executive officer at Prabhudas Lilladher’s portfolio management division. According to analysts, 15-17% revenues of Nifty companies come from the US markets.

Given the dollar’s surprise weakness against major currencies after Trump’s speech, bond and currency experts are not expecting any major pressure on the rupee on Monday. In case of the bond market, the yields could still see some pressure, but that would be due to domestic factors, they say.

“On Monday, domestic yields are likely to move above 6.50%, considering the large state government bond auction scheduled on Tuesday. For the time being, the 10-year bond yield will likely stay within 6.40 to 6.58%,” said Soumyajit Niyogi, associate director at India Ratings & Research. The 10-year bond yield closed at 6.47% on Friday.

“Trump’s speech lacked specifics. It was no different from his campaign speeches. This weakened the dollar across the board. So, most likely there will not be an impact on the rupee on Monday,” said Abhishek Goenka, MD of IFA Global, a currency consultant. Currency dealers expect the rupee’s technical range of 67.70 to 68.35 a dollar level could sustain for some more time.

Market experts see protectionist policies as key risks to the market in 2017. “Key global risks are the policy implications of the current spate of anti-globalisation forces prevailing over developed markets. This can have significant impact on trade and on the emerging markets,” said Aaron Low, principal, Lumen Advisors.