What to Expect from Donald Trump in 2025: Impacts on Markets and India

In the euphoric bull run of 2024, skepticism seemed to be the ultimate sin. Risky assets soared as Wall Street pushed out new products designed to hedge against volatility or diversify portfolios, and Dalal Street saw record high valuations. Yet, just 3 weeks into 2025, markets have entered a state of whiplash, leaving investors questioning whether last year’s exuberance was premature. So far this year, $8.5 billion has been withdrawn from funds dedicated to developing-world stocks and bonds, according to a JPMorgan Chase & Co. report citing EPFR data. The selloff has affected assets globally, from Chile’s peso and Indian stocks to sovereign bonds from Romania and El Salvador. The latest example of this volatility? A dramatic reversal this week saw both stocks and bonds rally, following a steep decline the week before.

As Donald Trump prepares to step into the Oval Office for a second term, Wall Street & Dalal Street are gearing up for more unpredictability and market volatility that marked his first administration. For investors & traders, Trump’s erratic and often unorthodox policymaking style presents a unique challenge as he will continue to publish policy announcements via late-night social media posts, potential shocks to international trading relationships, and a wide range of economic disruptions. Last week was a prime example. On January 6, speculation that Trump might roll back tariffs momentarily lifted S&P 500 futures and weakened the U.S. dollar. But the optimism evaporated just as quickly when Trump publicly refuted the rumor before the market’s open. In a separate instance, Trump’s suggestion of using "economic force" to convince Canada to become a U.S. state - was largely dismissed by traders as rhetoric. Canadian dollar barely budged, underscoring the difficulty of reacting to Trump's comments in real time.

It’s difficult to plug Trump’s comments into a formal econometric model. This sentiment captures the broader unease on Wall Street, where traders are adopting strategies to navigate the uncertainty. The bond market has become especially reactive to economic data surprises, as inflation fears and uncertainty about incoming President Donald Trump’s fiscal and trade policies continue to stoke unease.

This marks a continuation of a multi-year trend where emerging markets have struggled to attract investments. A strong U.S. economy, diminishing prospects for Federal Reserve rate cuts, and struggles in major developing economies like China and Brazil have made it difficult for traders to justify exposure to emerging markets. This blog delves into Trump’s proposed policies, their impact on global and Indian markets, and what we can expect in 2025.

1. Economy: Trade Wars and Tariffs

One of Trump’s hallmark strategies has been his aggressive stance on trade. In 2025, we expect more of the same, with plans to impose reciprocal tariffs on nations like India and China and to introduce a 100% tariff on BRICS nations if they continue efforts to reduce reliance on the U.S. dollar.

Market Implications:

• Volatility in Trade-Dependent Sectors: The potential for a U.S.-China trade escalation could lead to disruptions in global supply chains. Companies relying on low-cost imports or exports may face profitability challenges.

• Impact on Emerging Markets: Emerging economies like India, which depend on the U.S. for trade and investment, could see currency pressure and sectoral disruptions.

Sectors and Companies Affected:

• Indian Pharmaceuticals: Companies like Sun Pharma and Cipla might face headwinds due to higher tariffs on exports to the U.S.

• Indian Automotive: Tata Motors and Mahindra & Mahindra could see disruptions in component exports.

• Indian IT: Infosys, TCS, and Wipro could experience mixed impacts with opportunities in outsourcing but challenges from visa restrictions.

• US Industrial Manufacturing: Companies like Caterpillar and 3M might benefit from domestic production focus.

• US Consumer Goods: Procter & Gamble and Coca-Cola could see price pressures from higher tariffs.

2. Immigration and Border Policies

Donald Trump’s return to the White House is already sparking fears of a global supply chain disruption that could upend the $24 trillion world goods trade and the $7.5 trillion services trade. Among the most contentious issues is Trump’s focus on alleged misuse of the H1-B visa system, which has fueled heated debates on social media and put India’s key export market at risk. Trump’s focus on tightening immigration policies, including mass deportations and stricter border controls, will affect labor markets across industries.

The U.S. accounts for about 20% of India’s exports, including two booming sectors: phone manufacturing and global capability centers. Additionally, the U.S. remains a crucial source of capital inflows for India. However, Trump’s “transactional and mercantilist” stance on trade—treating allies and adversaries alike—may put significant strain on India’s trade relations. To mitigate the risks, India will need to accelerate trade agreement negotiations with partners such as the UK, the European Union, and Australia. The stakes are high as India navigates an increasingly challenging global trade environment.

Market Implications:

• Labor Shortages: Sectors like agriculture, construction, and hospitality, which rely on immigrant workers, may face higher labor costs due to workforce reductions.

• Tech Sector Concerns: Restrictions on work visas like H-1B could affect Indian IT companies, leading to a slowdown in their U.S. operations.

Sectors and Companies Affected:

• Indian IT: Infosys and HCL Tech could face visa-related challenges but gain from increased outsourcing demand.

• US Agriculture: Companies like Tyson Foods and Archer Daniels Midland could face labor shortages.

• US Hospitality: Firms like Marriott and Hilton may struggle with increased labor costs.

3. Foreign Policy and Global Relations

Trump’s foreign policy will likely reflect his "America First" approach. His focus on addressing de-dollarization initiatives by BRICS countries, along with geopolitical tensions, will have direct implications for India.

India-U.S. Relations:

• Strengthened Partnership: With shared goals to counter China, India and the U.S. are expected to deepen their defense and technology collaboration.

• Trade Tensions: Reciprocal tariffs could strain trade relations, particularly in sectors like pharmaceuticals, agriculture, and IT services.

Sectors and Companies Affected:

• Indian Defense: Bharat Dynamics and Hindustan Aeronautics may benefit from increased U.S.-India collaboration.

• Indian Pharmaceuticals: Firms like Lupin and Dr. Reddy’s could face challenges with higher tariffs.

• US Defense: Lockheed Martin and Raytheon could see gains from strengthened defense partnerships.

• US Energy: ExxonMobil may benefit from export-driven growth due to geopolitical shifts.

Foreign Fund Continues To Flow Out As Rupee Declines & Dollar Strengthens

Foreign direct and portfolio investments in India dropped by half in the first half of FY25 compared to the same period last year, with further slowdowns expected due to global trade and growth uncertainties. This decline could impact the availability of equity funds for both listed companies and startups, adding pressure on capital inflows. In January 2025 alone, FIIs pulled nearly $6 billion from Indian equities and bonds. This sharp withdrawal reflects in the monthly FII and Domestic Institutional Investor (DII) flows, as seen in the accompanying chart. FIIs recorded negative flows in most months, with October 2024 standing out as a month of heavy FII outflows. Meanwhile, DIIs, often regarded as a stabilizing force, counterbalanced these outflows, injecting significant funds during turbulent periods.

Despite their efforts, the rupee crossed the critical psychological barrier of 86 earlier this week, touching a record low of 86.6475. Analysts attribute this rapid decline to a strengthening U.S. dollar amid expectations of new trade tariffs under the incoming U.S. administration. The Indian rupee closed at 86.61 on Friday, capping off its worst week in 18 months with a 0.6% decline, its steepest weekly drop since July 2023. Persistent foreign portfolio outflows, coupled with intensified dollar demand in the non-deliverable forwards (NDF) market, have weighed heavily on the domestic currency. This marks the rupee's 11th consecutive week of depreciation, highlighting the growing pressure on emerging market currencies.

Speculators Ramp Up Dollar Bets Ahead of Trump’s Return

Currency traders are doubling down on expectations of a stronger U.S. dollar as President-elect Donald Trump prepares to return to the White House. As of January 14, speculative bets on further dollar gains reached $34.6 billion, marking a nearly $1 billion increase from the previous week and the highest level since 2019, according to Commodity Futures Trading Commission (CFTC) data aggregated by Bloomberg.

Trump’s policy promises, including potential tariffs and inflationary measures, are fueling bullish sentiment among traders. Since Trump’s election win, the Bloomberg Dollar Spot Index has climbed 5%, driven by speculation on inflationary policies, tariffs, and reduced expectations for Federal Reserve rate cuts. Long dollar bets have been accompanied by increased short positions against other major currencies, with $11.6 billion in bearish positions against the Canadian dollar and $7.8 billion against the euro, according to CFTC data.

However, the surge in bullish dollar positioning also raises the risk of a reversal. Should the Trump administration adopt a less aggressive stance on tariffs in the early days of his term, traders could face a swift unwinding of these bets.

4. Implications for India Under Trump’s Administration

India faces a mix of opportunities and challenges with Donald Trump’s return to the White House. While the camaraderie between Prime Minister Modi and Trump could strengthen cooperation in defense and technology, the potential for protectionist trade policies may strain key sectors. Trump’s pro-business stance could boost U.S. spending on IT and outsourcing, offering growth opportunities for Indian technology firms. Additionally, deeper defense collaborations may benefit India’s manufacturing and export efforts. However, reciprocal tariffs could hurt exports in high-growth sectors such as pharmaceuticals and engineering goods, and India may need to balance its role in BRICS while maintaining strong U.S. ties to avoid economic fallout.

Corporate earnings continue to be under pressure . Several sectors are expected to be directly impacted. In India, renewable energy companies like Suzlon may face challenges due to reduced U.S. focus on green initiatives, while agriculture exporters like ITC and Godrej Agrovet could encounter headwinds from potential U.S. import duties. Meanwhile, U.S. fossil fuel companies such as Chevron stand to gain from deregulation, while renewable energy players like Tesla might struggle with diminished federal support.

Market Impacts and Volatility

Trump’s unpredictable policies on tariffs, energy, and immigration are expected to drive significant stock market volatility. Energy and defense sectors are positioned as potential winners, with companies like ExxonMobil, Reliance Industries, Boeing, and Larsen & Toubro poised for growth. The crypto sector could also benefit from pro-crypto regulations, favoring Bitcoin miners and exchanges. Conversely, renewables like Tesla and Suzlon, along with trade-dependent multinationals like Unilever and Nestle, may face challenges. Emerging markets, including India, could experience currency volatility, with the Indian rupee particularly vulnerable to geopolitical tensions and trade barriers.

Energy and Technology: Shifting Dynamics

Trump’s policies on energy and technology are expected to alter global market dynamics significantly. A focus on fossil fuel production could boost companies like Halliburton and ONGC, while reduced support for renewables may challenge the sector. On the technology front, support for blockchain and crypto could spur growth in fintech, benefiting Indian players like Paytm and Zerodha as well as U.S. companies like Coinbase and Nvidia.

Social Policies and Education

Conservative social policies under Trump, such as banning critical race theory in schools and stricter vaccine mandates, may polarize markets. Indian education technology firms like BYJU’s could see reduced U.S. collaboration, while American healthcare companies like Johnson & Johnson may face shifts in vaccine demand. Consumer brands targeting socially conscious investors may also encounter scrutiny.

Conclusion: Markets in Flux

Trump’s second term could significantly reshape Asia’s economic landscape. Higher tariffs and stricter immigration policies may challenge export-driven economies like China, Japan, and South Korea while creating opportunities for others. India, Vietnam, and Indonesia could benefit as companies diversify supply chains away from China, leveraging lower costs and emerging manufacturing hubs. India’s growing status as a manufacturing hub could attract foreign investment, especially in the context of the "China + 1" strategy.

Stricter U.S. immigration policies could also retain tech talent within Asia, boosting innovation hubs in India, Singapore, and South Korea. This trend may support fintech growth in the region. Experts suggest that investors adopt a medium- to long-term perspective, focusing on high-quality stocks and sectors like IT and defense that are well-positioned to benefit from trade realignments and protectionist policies. As bond yields cool and FII outflows reverse, emerging markets like India may find renewed investor interest.

For India, the next four years will require strategic navigation. Strengthened ties with the U.S. could create opportunities in IT and defense, but trade barriers and BRICS dynamics pose challenges. Investors should prepare for a turbulent yet opportunity-rich landscape, focusing on sectors poised to align with Trump’s agenda while hedging against risks in trade and emerging markets.

Call to Action: Stay informed, monitor policy changes, and adapt strategies to navigate the evolving market environment under Trump’s presidency.