Financial markets had mostly been rooting for Hillary Clinton, with global stock prices tumbling every time Donald Trump was in the lead in the opinion polls. This trend continued early in the trading session on Tuesday, with the Sensex losing 6 per cent in initial trade and the S&P 500 futures hitting the lower circuit limit, down 5 per cent.

But the recovery in Indian stock prices after Donald Trump’s victory shows that the markets are hoping that as president, he will act in a rational manner once he takes charge. His acceptance speech appears to have gone down well with stock market participants, helping the Sensex and the Nifty recoup most of their losses.

While his comments and speeches during the Presidential battle project him as someone ill-equipped to take charge of the world’s largest economy, stock markets are perhaps willing to give him a chance to prove himself.

If he pushes through policies that de-stabilise the financial ecosystem, volatility is likely to return to financial markets. Then again, a Trump win might not be so bad for markets.

Pro-business

Donald Trump is clearly pro-business and pro-Wall Street. He believes in less regulation and in letting businesses thrive. Trump proposes to reduce taxes across the board, thus boosting consumption.

Hillary Clinton intended to increase taxes on high-income families, large businesses, on algorithmic trades, businesses that moved operations out of the country to save taxes, etc.

Trump’s tax proposals are far more benign. They can give boost consumption over the long-term, in turn, aiding growth. The tax revenue shortfall could, however, lead to increased debt in the US.

Trump proposes to lower the business tax rate from 35 per cent to 15 per cent, and eliminate the corporate alternative minimum tax. This will spell large savings for corporates and boost earnings, if implemented.

He plans to provide a one-time offer to businesses to repatriate business profits from overseas to the USA by paying a tax of 10 per cent. This measure can help boost the dollar.

He proposes to collapse the current seven tax brackets of individual tax to three brackets and increase the standard deduction limits of single filers. These rates are expected to slash the tax outgo of lower income groups while retaining the tax rate of high-income groups.

Less regulation

While Clinton favoured clamping down on Wall Street to ensure that a repeat of the 2008 crisis does not occur, Trump is in favour of fewer regulations. He does not have any specific views on imposing restrictions on banks and Wall Street firms, which is favourable to stock markets.

FPI angle: It is liquidity from foreign investors that has kept Indian equity markets buoyant this year. Investors from the US account for about a third of FPI money in equity markets currently. With benign tax policies and regulations for investment funds in the US, flows from this region can remain good.

That said, Trump’s policies on boosting growth are rather vague. He plans to increase the growth rate to 4 per cent over the next few years from under 2 per cent now. He also aims to create 25 million jobs over the next decade but hasn’t really spelt out how on either count.

His stance on immigrants has got many emerging economies that have large services exports to the US on edge.

His comments about China’s policy of keeping the yuan undervalued increases the prospects of a currency war. Trump’s rhetoric against free-trade, which blames for erosion of American jobs, is perhaps the key factor that spooks markets. He has promised to renegotiate trade pacts perceived as unfavourable to USA.

It is, however, unclear whether he will be able to push through these measures in the current global ecosystem. The repercussions of such measures on the US economy are also likely to be severe.

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