India Least Exposed To Trump's Trade Policies; CLSA Raises India's Overweight To 20% Over China

India is emerging as one of the least affected markets in the region when it comes to former U.S. President Donald Trump's trade policies, highlighted a report by global brokerage firm CLSA.

The report stated that this resilience is attributed to India's relatively low trade exposure to the U.S., manageable corporate leverage, and declining levels of foreign equity ownership. While other markets might face greater vulnerabilities, India remains better positioned to weather such challenges.

"India appears as among the least exposed of regional markets to Trump's adverse trade policy. Moreover, so long as energy prices remain stable, India may offer a relative oasis of FX stability in an era of a strengthening US dollar," it said.

The report also reversed its tactical overweight on China while raising its exposure to a 20 per cent overweight on India. It said "We therefore reverse our tactical allocation in early October, returning to a benchmark on China and a 20 per cent overweight on India."

It mentioned that one of the key factors supporting India's stability is its ability to maintain relative foreign exchange (FX) stability, especially if global energy prices remain stable.
 

Despite a strengthening U.S. dollar, India is seen as an attractive destination for investors seeking to shield themselves from volatile markets elsewhere.

The report also noted that the foreign investors have been net sellers in the Indian market since October. However, this hasn't dampened domestic investor appetite, which continues to remain robust and has helped offset the impact of foreign outflows.

It stated that many foreign investors, in fact, see this dip as a potential buying opportunity to address their underexposure to India. While valuations remain slightly high, they are becoming more appealing to investors.

The report said, "India has seen strong net foreign investor selling since October, while investors we met this year have been waiting specifically for such a buying opportunity to address Indian underexposure."

A key risk to Indian equities, however, is the possibility of an overwhelming volume of new stock issuances. The cumulative 12-month issuance currently stands at 1.5 per cent of the market capitalisation, a level often seen as a historical tipping point that could strain the market.

Furthermore, India could benefit from the ongoing shift in U.S. investment flows as companies adopt ‘China plus one’ strategies, which aim to diversify supply chains away from China. This trend could bolster foreign investment in India, adding another layer of support to its economic resilience. (ANI)