Nifty IT soared 150% during Trump’s first term. Is it likely to be repeated in his second term?

Former President and Republican candidate Trump achieved a major victory in the 2024 US presidential election, making a historic comeback after his defeat in 2020. Laying the foundation for re-election.

Trump’s victory was enthusiastically welcomed by investors around the world, as reflected in Wednesday’s strong rebound in global stock markets. The S&P 500 surged more than 2.5%, its biggest intraday gain in two years. The upbeat momentum also boosted Indian markets, with the Nifty 50 and Sensex both up more than 1%.

In addition to stocks, Bitcoin has surged to new all-time highs, driven by Trump’s pro-crypto campaign promises. The dollar also posted its biggest gain in eight years, underscoring the market’s positive reaction to his election.

Trump’s policy focus under the “Make America Great Again” agenda is to strengthen American industry and employment. During his first term, he implemented various measures such as raising tariffs on imported goods, especially from China to protect U.S. goods, tightening H-1B visa regulations, and increasing the federal corporate tax rate from 35% reduced to 21%.

During the 2024 presidential campaign, Trump proposed further reducing the corporate tax rate on U.S. manufacturing, with the goal of reducing it from 21% to 15%. He has also advocated for new tariffs, including a 10% tariff on all imports and a 60% tariff on goods from China.

Rising expectations that proposed corporate tax cuts could increase discretionary corporate spending as Trump returns to power were a key factor in global stock market gains on Wednesday.

The Tax Foundation, a nonpartisan think tank that specializes in U.S. tax policy, estimates that Trump’s proposed tax measures could have a beneficial impact on U.S. GDP in the long term.

At the same time, the stock prices of Indian IT companies, which generate 60-70% of their revenue from the United States, rose sharply in the previous trading day. The Nifty IT index ended trading with a gain of over 4% on hopes that Trump’s policies will push US companies to increase IT spending.

Analysts pointed out that industries such as U.S. banking and healthcare currently have low penetration rates but have huge growth potential. Additionally, manufacturing is facing challenges, raising expectations that spending on IT projects may increase, which may benefit Indian IT companies.

Indian IT stocks shine under Trump 1.0: possible repeat performance?

During Donald Trump’s first term, Indian IT stocks experienced significant gains from January 2017 to January 2021. The Nifty IT index achieved an astonishing return of 150%, significantly exceeding the 60% increase of the Nifty 50 index during the same period.

Analysts now believe that Indian IT companies are well-positioned to benefit from a potential rebound in US IT spending. The recent second quarter results showed a positive trend in US BFSI (banking, financial services and insurance) spending, which could become a strong growth driver for Indian IT companies.

The growth of this industry, coupled with expected investments in cloud, artificial intelligence and digital infrastructure, is expected to increase the revenue of Indian IT companies, making it attractive in the current market environment.

On the other hand, there are concerns that H-1B visa norms may be tightened. During his first term, Trump implemented Executive Order 13788, titled “Buy American, Hire American,” which increased restrictions on H-1B visas, resulting in significant H-1B and L-1 visa denial rates. rise.

However, global brokerage JM Financial noted that major Indian IT services companies have reduced their reliance on these visas, thereby largely insulating themselves from the impact of potential policy changes. According to JM Financials estimates, about 65% of Infosys’s U.S. employees relied on H-1B and L-1 visas in fiscal 2017. This dependence will fall below 50% by FY20 and is expected to fall further, thanks in part to Infosys’ “expanded localization” strategy.

Wipro also reported that 69% of its global workforce was localized in FY20. In addition, JM Financial also highlighted that H-1B visa approvals for Infosys, TCS and Wipro have decreased by 50-80% in the past decade, highlighting the industry’s shift towards reducing dependence on foreign worker visas.

At the same time, experts also said that potential increases in tariffs may curb discretionary spending in the United States, thereby affecting IT spending.

Nitin Aggarwal, director of investment research and consulting at Client Associates, said: “A key focus of the Trump presidency has been reducing the U.S. trade deficit, a policy that relies heavily on raising import tariffs. While these measures may help reduce the trade deficit, they That could make imported goods more expensive, pushing up inflation, which in turn could delay interest rate cuts from the Fed, which is already grappling with persistent inflationary pressures.

“For India, the consequences of this policy shift are likely to be twofold. First, certain industries such as pharmaceuticals and information technology may face challenges. Indian generic drug manufacturers may face higher tariffs on products exported to the United States, This will in turn affect the pharmaceutical industry. At the same time, demand from the Indian IT industry may also slow down as the trade war and economic slowdown may reduce discretionary spending in the United States,” he added.

Trump trade may not help India’s overvalued market

Dr. VK Vijayakumar, chief investment strategist at Geojit Financial Services, said: “Trump’s ‘America First’ pro-business initiative can strengthen the U.S. economy. But if he follows through on his words and imposes a 60% tariff on Chinese imports, it will A 10% tariff on goods and a 20% tariff on imported goods from other countries will trigger inflation and jeopardize the Fed’s policy to curb inflation, forcing the Fed to reconsider its current interest rate cut policy, which is possible have a negative impact on global stock markets. “

It is worth noting that although Trump’s anti-China policies have a positive impact on India, Trump has always criticized “India’s high tariffs” and will not hesitate to impose tariffs on Indian products exported to the United States.

He also emphasized that “Trump’s trade”, which has greatly boosted the US market, is unlikely to have a similar positive impact on India because of its higher market valuations and the headwinds caused by slowing profits. He said that during this period of excitement and uncertainty, investors should stick to quality and value.

Disclaimer: The opinions and suggestions given in this article represent only the personal opinions and suggestions of the analysts. These do not represent the views of Mint. Investors are advised to consult a certified expert before making any investment decisions.