Moneycontrol Pro Panorama | Budgeting for a Trump world

Trump’s agenda is to boost manufacturing in America.

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The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

This week was a busy one. Donald Trump, elected President of the US, took his inaugural oath and immediately began signing executive orders that will have far-reaching effects on not just Americans but citizens of other countries as well. The World Economic Forum summit in Davos, where world leaders meet annually to ruminate over economic realities, saw Trump make the threat of tariffs all too real. “If you are not making in America, which is your prerogative, then you will have to pay a tariff," Trump said.

Nothing can be clearer than this. Trump’s agenda is to boost manufacturing in America and his sentiments towards China’s growing influence in the global economy is also well known. Most of his trading partners are in his tariff firing line, some mortally closer and some near safer zones.

India fortunately is not in this direct firing line but in fact is seen as more of an ally. External Affairs Minister S. Jaishankar has said that the Trump administration is prioritising India. This could be one of the million statements that foreign ministers tend to give while functioning in their diplomatic position or it could ring true--- only time will tell. We may hold a more favourable position with America, but Trump’s policies are likely to impact India, indirectly if not directly. To start with, Trump’s withdrawal from the climate accord, his preference for status quo on fossil fuels, immigration concerns, and taxes will impact us.

As such, India is off the radar of foreign investors as our column this week points out which is not good for our markets and economy.

What can we do about it? The government has its opportunity with the Union Budget it will present on February 1. The best antidote to external pressures and the changing environment is to fortify domestic capabilities and enhance shock absorbers in the economy. In essence, the budget will need to take steps to boost domestic consumption, lift investments and ensure that exports don’t get hurt. Ananya Roy explains in her latest column here how the budget can help get the mojo back for the economy and by extension for the investor. “Therefore, if the upcoming budget is able to reiterate its commitment towards investments with a fiscal multiplier effect and provide the much-needed tax breaks to individuals while sticking to fiscal consolidation, it would help re-establish the promising long-term potential of India’s economy and consequently, of India’s stock markets,” Roy writes.

The focus unerringly should be on safeguarding India’s potential growth, worries over which have begun to mount in recent times. The economy is undergoing a cyclical slowdown with gross domestic product (GDP) growth projected to fall to a four-year low of 6.4 percent in the current fiscal year. What it needs is a continuing capex boost. This is the easier task for the government since it hasn’t spent enough on capex this year and will fall short of its target. At the same time, the government needs to push the private sector towards capex. India’s billionaire businessmen must walk the talk and begin setting up factories and building infrastructure. What they need is assurance that their products will get the demand. This is where the government will need to put money into the hands of the average Indian householder to spend.

Indeed, this is a challenging ask from the finance minister but not something she is not used to. After all, in the budget for 2021, the minister presented a plethora of measures pleasing almost everyone. Manas Chakravarty in his column here points out how the 2021 budget has a blueprint that can help the finance minister navigate the opposing goals of giving Indians more money in their pockets through tax breaks and at the same time finding money for the government to spend on critical sectors. Much of the 2021 proposals are yet to be fully implemented, which should be done at the earliest.

In all this, the government cannot ignore fiscal prudence after its own drumbeat on the same for many years now. Analysts believe the fiscal deficit is on its way down and our Budget Snapshot
captures another metric that needs attention: the debt-to-GDP ratio.

The best shield for a dramatically changing global environment is a well-fortified domestic balance sheet that reflects a similarly robust economy. The budget that works towards that will have high odds of succeeding in an extraordinary world order under Trump’s US Presidency.

Investing insights from the research team

Weekly tactical: Why this high-quality private bank is a diamond in the dust

Coforge Q3 FY25: Why add despite the sharp post earnings rally? 

UltraTech – Industry outperformance continues 

Pidilite Q3FY25: Steady quarter in a challenging environment

Dr Reddy’s: Semaglutide opportunity is a key factor to watch

What else are we reading?

Personal Finance: How long will the longest bull run last?

BFSI recovery holds out hope for IT companies amid Trump uncertainty

Structural changes raise concerns about long-term viability of trading, according to Jainam Broking’s Milan Parekh

US stocks at most expensive relative to bonds since dotcom era (republished from FT)

India’s on the cusp of becoming a global music powerhouse

As Supreme Court turns 75, a look at some of its milestones

Budget expectations from infrastructure sector

Budget can turbocharge Fintech

Technical Picks: Tata Power, Eicher Motors, TRF.  

Aparna Iyer
Moneycontrol Pro