Indian Prime Minister Narendra Modi met with Elon Musk in the United States on June 20, 2023.
Press Information Bureau of India | Anadolu Agency | Getty Images
This report comes from this week’s CNBC “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse and the big players behind its meteoric rise. Like what you see? You can subscribe here.
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President-elect Donald Trump is less than a week away from being sworn in and has promised a slew of events from day one.
Trump has pledged to impose steep tariffs on all imports from China, a key policy that worries global investors but is also seen as beneficial to India.
Economists expect India to benefit from the U.S.-China trade dispute as U.S. companies try to diversify their supply chains.
“This can all play out in a number of ways, but India and Indonesia are likely to prove to be the biggest and most direct beneficiaries of Trump’s tariffs – they do not appear to be in Trump’s crosshairs, and the geopolitical risks are considerable. low and has a large and fast-growing domestic market,” said Capital Economics’ Shilan Shah and Marcel Thieliant.
However, many analysts also predict that U.S. manufacturing is unlikely to recover simply because of tariffs. Conversely, import taxes could lead to a spike in inflation without economic growth — a scenario Trump wants to avoid.
Thierry Wizman, global foreign exchange and rates strategist at Macquarie, said: “Trump has seen how much inflation erodes electoral support for the Biden administration, and he needs to use deflation to Offsetting possible inflation from tariffs and immigration restrictions.
Recent chatter in Washington suggests the tariffs are unlikely to be widespread. Scott Bessent, the hedge fund billionaire and Trump’s nominee for Treasury secretary, is also expected to lay out his vision for U.S. trade policy in today’s speech. senate confirmation hearings This reinforces the idea of ​​targeted responsibilities.
However, another billionaire Elon Musk could have a huge influence on US trade policy towards China, which could be detrimental to India’s economic growth.
Musk is the leader TeslaThe automaker has huge economic exposure to China and hopes trade policies between the two superpowers are resolved quickly rather than escalate tensions.
It’s also possible that the Chinese government views Musk as an operator who can help ease tensions between Beijing and Washington. China is reportedly considering a plan Musk, who owns social media platform X, acquires TikTok’s U.S. operations to prevent the app from being effectively banned. TikTok has denied the reports and said it will not sell its U.S. operations.
While Musk is not the only one with business interests in China, he is among the future president’s inner circle of close advisers and is likely to play a key role in a U.S.-China trade deal.
“If the U.S. does a deal with China, it will definitely be a negative outcome for India,” said Gaurav Narain, a portfolio manager at London-listed Co. India Capital Growth Fund. “Companies are clearly exploring alternatives to China, which presents significant opportunities for India.”
“However, if a deal is reached, the urgency of finding alternatives will disappear as China will remain more cost-competitive and has a complete supply chain,” Narain added.
The Tesla CEO has previously publicly expressed his displeasure with India’s “by far the highest” auto import tariffs in the world. Instead of supporting India, Musk, who now listens to Trump, may reignite trade tensions between India and the United States over India’s import tariffs.
In an effort to appeal to Musk and to some extent divert attention from its own tariff policy, the Indian government is temporarily lowering import duties on electric vehicles to 15% by 2024 after keeping them at 100% for decades. .
However, economists say Trump surrounds himself with enough China hawks that even a trade deal would only delay companies moving away from China, rather than prevent it entirely.
“I think investment (into India) is probably going to slow down because companies are looking at this and thinking, ‘Oh, we’ve got four more years,'” said Michael Langham, India economist at asset manager abrdn. “I don’t think companies are so short-sighted that they don’t plan ahead for the long-term trend, which is diversification of the supply chain. “
Others also believe that the Covid-19 pandemic, in addition to the trade tariffs Trump imposed during his first administration, has contributed to corporate strategies to exit China.
“I think the reasons why companies are recalibrating their supply chains are much deeper, so that’s likely to continue,” Sonal Varma, chief economist at Nomura Securities India, told CNBC in late December. Adding: “I think the trade imbalance between the United States and China is just a small problem, but actually a bigger problem.”
There’s also evidence that Musk doesn’t always get what he wants with Trump.
The Tesla CEO has backed Howard Lutnick, chief executive of investment bank Cantor Fitzgerald, as Treasury secretary. Instead, Trump chose Bessent, a billionaire hedge fund manager, to lead the U.S. government’s finance department.
need to know
Inflation slows in India. India’s inflation rate in December Annual increase of 5.22%according to data from the Ministry of Statistics and Program Implementation. The data was lower than the 5.30% forecast in a Reuters analyst survey and was the second consecutive month that inflation slowed. Weak inflation data provides room for RBI to cut interest rates, amidst the slowdown in the country’s economic growth.
China may delay exports to India. Shri S. Krishnan, secretary of the country’s Ministry of Electronics and Information Technology, said on Tuesday that the government has received feedback from industrial companies such as Foxconn and said Capital equipment is stuck at Chinese ports It’s been months. Krishnan said China had not announced any formal restrictions but the move could be guided informally by Beijing.
The Indian government does not believe there is a problem with the currency or oil supply. The Indian rupee continues to depreciate against the US dollar this week, but the government has sufficient foreign exchange reserves Prevent any excessive currency fluctuationssaid a government source. The government is also confident that India will not experience any oil shortage or price spike following the US sanctions. New sanctions on Russian oilof which India is one of the largest buyers.
Get returns from India with options. The Indian economy is currently slowing down. However, according to United Nations forecasts, its growth prospects are still strong relative to other global markets. one of the best ways There may be options to break into the Indian marketsaid the chief strategist of an investment firm. (Available to subscribers only)
What happened to the market?
Indian stocks appear to be recovering from a bad start to the year. this nifty 50 The index is down 0.5% so far this week but has been trending upward over the past few days. The index is down 1.41% this year.
India’s benchmark 10-year government bond yield briefly rose 10 basis points over the past week, but fell back to 6.75% on Thursday.
Neelkanth Mishra, chief economist at Axis Bank, said on CNBC television this week that the Indian rupee is facing “excessive stability”. In the past two years, Rupee swings more constrained Mishra said the exchange rate is higher than other global currencies. Mishra said this is because the Reserve Bank of India has a policy of stabilizing the currency and it may maintain this stance “longer than necessary”.
Meanwhile, Sumeet Jain, senior research analyst at CLSA, told CNBC that India’s IT industry valuations “have been rising over the past two years despite earnings downgrades.” Despite this, Jain still "cautiously optimistic“Regarding the industry, because India’s macroeconomic conditions are on an upward trend.
What happens next week?
Dental products manufacturer and exporter Laxmi Dental went public on Monday. Pay attention to China’s GDP and retail sales data on Friday.
January 17: Final reading of China’s fourth-quarter gross domestic product and December retail sales, and Eurozone’s December inflation rate
January 20: Laxmi Dental IPO, China loan preferential interest rate decision
January 23: Japan’s December trade balance and Eurozone’s January consumer confidence express data
