Geopolitical risks - Impact of US Elections on Indian Investors

Donald Trump has won the U.S. elections springing a surprise on many and the equity market across the world have felt the jolt in the last few days. Sensex in India had seen a drop of 1600 points upon declaration of the election results and the drive towards eradicating black money in India, and the stock market is still figuring its way back. It’s hard to tell how long the uncertainties are going to be there in the air.

U.S. elections have always led to ripples in the Indian economy in the past but this one seems to have broken its previous records. The real estate tycoon has left many financial experts speechless with his victory and the after effects. He put forward his 15-point agenda in the run up to the elections and implementation of it could spell change for businesses, investments and government policies in India.

What should an investor do in times like this?

Scenarios like this are testing and can be used to one’s advantage through smart moves. So, instead of getting bothered by all the noise around, we think you should focus on re-assessing and re-orienting your investment portfolio.

Here are some dos and don’ts for you to deal with a Trumped up market:

Avoid IT stocks: It’s time to take your eyes off IT stocks, as IT companies are likely to shift their focus back to U.S., if Trump implements his tax plan, under which the corporate taxes was supposed to be trimmed to 15% from the prevailing 35%. While this could be good news for U.S., as companies which have established units in other countries to benefit from their tax regimes will rush back to their soil, it could mean lack of jobs and investment in India. Also, with his views on H1B visa, it’s bad news for Indian IT stocks and IT companies.

Avoid pharma stocks:  India is currently the second-largest exporter of pharmaceutical products to U.S. after China and the numbers have more than doubled in the last five years after Obamacare came in to place. With Trump’s idea of scraping the plan, the pharmaceutical industry is India is likely to take a beating. In a time like this, it’s best to keep your hands off pharma stocks.

Go for defensive instruments: If you find yourself in dilemma due to the uncertainties and frequent fluctuations in the market, this might be a good time to avoid small-cap and mid-cap companies all together, as these are relatively riskier than large-caps. Also, make sure you mix your equities well with secure instruments such as government bonds and securities, bank deposits and PPFs to minimize risk. Once the sky emerges clear again, you can go for more aggressive investment assets.

Buy gold: The yellow metal has been the go-to guy during any financial crisis and it’s known for being a hedge against inflation. After the announcement of the U.S. elections result, gold prices rose over Rs 32,000. At a time like this, when the market is volatile, gold is a good investment to earn high short-term returns. You can also avoid storage costs by investing in dematerialized forms through sovereign gold bonds, gold ETFs and mutual funds investing in gold ETFs.

This is a time when you should hold on to what you have rather than exploring ambitious options. However, do remember to review and reassess your portfolio from time to time.

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