Dear Reader,
This week was all about Trump. The world listened with bated breath to his inaugural address and his speech at the World Economic Forum in Davos. Each of his statements, each tweet, each announcement was parsed for clues about the policies he intends to pursue. The markets hung on every word, gyrating wildly in tune with his utterances. And to be fair, there was a veritable deluge of utterances--many accusations have been levelled at Trump, but keeping mum was never one of them.
He said quite a few things, his favourite topics being how great he is, how incompetent the Biden administration was, and how America had entered a golden age under him. He talked about how unfairly everybody had taken advantage of the US, including the illegal immigrants, China, the European Union, Canada, Mexico, Panama and how he would reverse all that. He threatened to double tax rates for foreign nationals and companies. The general tone of his remarks may best be expressed by the refrain of the song by Queen, which goes, "We will, we will, rock you.’’ While the US markets seemed to like that song, the Indian markets not so much.
While most analysts and policy makers are braced for Great Disorder Under Heaven, over the course of the week we had some idea of what Trump was trying to do. In his speech to the WEF, for instance, Trump invited businesses to set up shop in the US, dangling the carrot of low tax rates. For those who refused his blandishments, he threatened the stick of higher tariffs. He said he wanted lower oil prices, lower interest rates, more oil drilling, lower business regulations, higher spending on defence by NATO partners. He announced a $500 billion private sector investment initiative in US AI infrastructure. He even said he would ‘rather not’ put tariffs on China and asked China’s help for a peace deal in the Russia-Ukraine war.
Trump’s economic strategy seems to be to use the threat of tariffs as a negotiating tactic to get more investment into the US. He is not averse to doing such deals even with adversaries such as China. His support of drilling for oil is to get fuel prices down, which he believes will lower inflation and allow interest rates to come down. Elon Musk, as head of the Department of Government Efficiency is expected to slash unnecessary expenditure, while leadership in AI is supposed to improve productivity, leading to higher growth with lower inflation. BCA Research has a note out on the likely economic strategy of Scott Bessent, the hedge fund manager who is Trump’s pick for Treasury Secretary. It says, ‘Bessenomics envisions that supply-side reforms (like deregulation and tax cuts), in combination with cutting fiscal spending and bringing down oil prices, will offset the inflationary impact of tax cuts, immigration reversal, dollar depreciation, and some moderate tariffs.’
As for China, Louis-Vincent Gave of Gavekal Research said here there’s a possibility 'that Trump comes in, calls China and Japan over to do a Mar-a-Lago Accord, where they agree to revalue their currencies and agree to build factories in the US. Trump can then turn around and say he made the best deal ever with the Chinese, that he’s the master negotiator and then he can sell more copies of ‹The Art of the Deal›. And everybody’s happy.’ Indeed, as we pointed out here, emerging markets could very well see a relief rally.
Will his policies work? Well, bond fund giant PIMCO says, in this FT piece, that the Fed is likely to keep rates on hold for the foreseeable future. The Fed Funds futures are signalling the first rate cut in June and only two rate cuts of 25 basis points this year. But what is likely to happen is that US businesses, especially US big business, are likely to do very well. Trump is the champion of US capital. That should be good for US stockmarkets, and US equities are the favourites to be the best asset class this year among global fund managers. This FT article said that US equities are at their most expensive relative to bonds since the dotcom era.
The Bank of America surveys also found that India remained off investors’ radars. As this piece tells us, the uncertainty on the global front has now been joined by worries about a slowdown in the domestic Indian economy, and we need an extraordinary budget for these extraordinary times to Make India Great Again. Taking a leaf from Trump’s playbook by inviting investment, including Chinese investment, and slashing taxes could be the way forward.
The latest confirmation of the slowdown comes from the HSBC Flash India PMI, which has the headline, ‘2025 begins with private sector growth slowing and services losing steam.’ Hence the importance of next week’s Union Budget. This analysis says, ‘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.’
For the present, though, the Indian stock market is seeing a Bad Moon Rising, singing:
‘I see the bad moon a-risin'
I see trouble on the way
I see earthquakes and lightnin'
I see bad times today.’
Cheers, Manas Chakravarty
In case you missed them, here are some of the stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:
Stocks
Will it be shock or celebration for Indian equities as Trump 2.0 kicks off? Zomato, Karur Vysya Bank, HDFC AMC, Cyient DLM,
Why this high-quality private bank is a diamond in the dust, Coforge, Ultratech, Pidilite, Dr Reddy’s, Kotak Mahindra Bank, Indian Hotels, Can consumption get a lift from Budget 2025? Tech Mahindra, ICICI Lombard, Havells India, Dixon Technologies, Metro Brands, Persistent Systems, HUL, HDFC Bank, Dalmia Bharat
Markets
Bank of America survey finds India remains off investors’ radar
Why traders should go in for ‘Dal Chaawal’ style of trading in 2025
Structural changes raise concerns about long-term viability of trading---Jainam Broking’s Milan Parekh
Budget 2025
What the budget can do for the auto sector
Is it time to address government debt-to-GDP ratio?
How defence stocks march to the FM’s drum
India’s spending on healthcare rises, focus should turn to capacity build-up
Rural could be a key beneficiary of Budget 2025
Agri sector expects more reforms, measures to boost rural income
Weak capex could drag Centre’s spending to a 6-year low in FY2025
A three-cornered Budget thrust likely to leave RBI cleaning up the mess
Agriculture sector needs imaginative policies in Budget 2025
Financial Times
Companies & sectors
HUL’s results show FMCG urban consumption malaise continuing
BFSI recovery holds out hope for IT companies amid Trump uncertainty
IT companies see healthiest recovery in the last 1.5 years in Q3 FY25 earnings
Quick Commerce’s need for speed poses risks to key stakeholders
Can agents whip up profitable growth for SBI Life?
Economy & Policy
Trump 2.0: Can India-US trade ties bet on Musk momentum?
SEBI's new guidelines for financial advisors make it unviable to do business
RBI’s aggressive forex interventions have countered volatility, but at what cost?
Change in IMF forecasts reflects exceptional performance of US economy, dollar
Geopolitics
Could Trump swing a US-China deal?
RBI research reveals economic ripple effects of geopolitical shocks on India
Trump’s executive orders will disincentivise US industry, boost China
Will Trump’s 'drill, baby, drill' send a chill down climate course?
Tech & Startups
US’ proposed AI Diffusion Framework poses risk to India’s tech ambitions
Startup Street: In God we trust – Startups riding the faith wave
Industry sees opportunities for India in US' $500 billion Stargate Project for AI infra
AI cannibalising short-term revenues but will deliver long-term gains: LTIMindtree CEO Debashis Chatterjee
Personal Finance
How long will the longest bull run last?
What investors miss while trying to time the market
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
