Why India may have strategic repercussions if Trump loses election

If Trump loses the election, it would unleash the Chinese dragon at the border. We will have strategic repercussions as he is holding back China at this point of time, says Ajay Srivastava, CEO, Dimensions Corporate Finance.

Are we in for choppy, nervous days ahead of US presidential elections?
We are going to be in for choppy days and that is the important part for India because not only it there going to be an economic impact of what is going to happen but there is also the China impact to consider because it is very clear now that if Trump loses the election, it would unleash the dragon on the borders of India. We will have strategic repercussions as he is holding back China at this point of time.

So for India, the US election is more than economic impact, it is a huge strategic impact. Whether the Biden team will continue the US China policy and hold them back is going to be a key question for Indian markets. If China decides to move, it is going to be trouble for the market if Trump is not back. The situation is very binary for India. If Trump loses, we have a problem; if Trump wins, we are good to go at least till February when the December quarter results will start rolling in.

Why do you think there will be a binary outcome? I am sure the Democrats are also cognisant of what the economy needs.
Absolutely! The $2-trillion stimulus plan is being held up and if they win, they are going to bring it in and that is going to give a boost to the market like all the other stimulus plans have done. I am sure the Democrats are holding back the stimulus plan only for the election. US may still see a bump up because the stimulus plan which may roll off once the tax increases start to roll in. US could still be seeing a steady kind of a flow there but people are going to take critical calls and lots of markets are being hedged at this point of time. It is very clear that there is a stimulus plus in the US market and to the extent, whatever happens after that might have a dampener on the equity market.

But for India the most strategic factor is not the 2-trillion stimulus driving the US market. You may see a divergence between India and the US at that point of time. It is the China factor that is going to be the key for Indian markets. The Indian government is now battling a disparity of income. Then there is the issue of Bangladesh stealing a march over India in GDP growth rate. The Indian government has got a challenge and the last thing they want is a huge expenditure on defence and instability at the borders. That is a more critical factor. The rest by and large have been factored in. Demand will move up. The festival season looks okay, the market is fairly priced and in most cases, it is fairly priced.

You do not need to go and invest big time in this market. One has to calm down, relax with your money and let us see how the market rolls. That is why I said only one strategic factor can change the nature of this market.

How are you preparing your portfolio for a binary event? As a fund manager, are you buying protection which is puts, are you sitting on cash?
There are two ways to do it. One, the US portfolio should be hedged at this point. But in India, hedges are pretty expensive. You cannot really hedge your portfolio. So you really need to be back where you were originally. You are back with IT and pharma. One does not need to tweak the India portfolio. We lost out one big bet as we did not invest too much in autos but that is alright. But you do not need to go in and invest now. Nothing needs to be tweaked in the India portfolio because by and large, in banking the same companies are doing well, the consumer sector has stabilised. One does not need to buy much or sell much.

So, if you have invested in the US market, hedge it. In Indian market, just focus on export sectors which have done well for the time being because down the line if something goes wrong, Indian consumption, Indian expenditure might get diverted and that is where the bottom line comes in for the economy. So while there is nothing much to tweak on the portfolio, you certainly do not want to be in the bottom 800 of 1,000 BSE companies. Those are going to take the worst hit. If you are in any of the 1000 companies at the bottom end of the BSE, then you got to be a very gutsy speculator and not an investor. So clean up your portfolio.