On the equity mutual funds front, Trump's pointing the gun towards IT and pharma sectors
Not one day goes when the new US President Donald Trump is not in the news for his unconventional policies or controversial statements which have sent the global financial world cowering. So how Trump affect Indian personal finance?
Experts say Trump's attack on overseas infotech and generic pharma companies means sector-specific funds may be at risk. His energy policies could affect energy companies and funds with exposure. However, you can benefit from gold if you own it in physical or dematerialized form on account of volatility. Fixed income yields too could be under pressure.
Vinod K Sharma, head of business, private client group, HDFC Securities, said, "There is a lack of clarity on how Trump will tackle trade, tax cuts and infrastructure spending. This scenario augurs well for India. A relatively weaker dollar will do wonders for our markets and will increase the attractiveness for the FIIs." Indian investors will surely hope this situation plays out because initial signals are not good at all.
On the equity mutual funds front, Trump's pointing the gun towards IT and pharma sectors. These two sectors, which has companies with a fair share of investor money, are on Trump's radar for taking away American jobs.
On mutual funds betting big on IT sector, Sachin Jain and Vinav Kadel, analysts at ICICI Securities, maintain neutral stance as the industry could face challenges related to immigration rules post the election of US President Donald Trump, uncertainty around Brexit, growing protectionism around the world leading to marginal IT spending by companies. Software companies account for 9% of mutual fund industry money.
There is one investment asset which can benefit from Trump's approach. That is gold. Gold returns in India mainly track global price trends, which thrives when fear is at its peak. Chirag Mehta, senior fund manager-alternative investments, Quantum AMC, said, "There exist more uncertainties than certainties in the global macroeconomic environment of which Trump's presidency is a big unknown. We believe that barring the near term, gold prices should start moving gradually upwards in 2017."
Standard gold (99.5 purity) trades below Rs 29,000 per 10 gram in Mumbai. In the Indian context, gold also acts as a currency hedge; appreciating in value when there is a fall in the rupee vis-à-vis the US dollar. This is because the domestic price of gold is based on the international or US dollar gold price, excluding domestic taxes. Dhaval Kapadia, director portfolio specialist, Morningstar Investment Adviser India, said allocation to gold can be maintained at 5% to 10% of an investment portfolio. Gold ETFs due to various benefits like ease of holding, better liquidity, pricing transparency, etc, can be considered as an alternative to holding physical gold.
On the fixed income front, there are many different ways Trump can affect your money. Fixed income is not just the bank deposit. In today's world, fixed income or debt instruments are deeply affected by global developments and cross-country currency movements.
Lakshmi Iyer, CIO (debt) & head of products, Kotak Mutual Fund, told DNA Money: "Trump's policy with respect to the US interest rates is extremely important. This will effect fixed income in a big way. At this moment, we are still to understand his approach. Another thing that will have an impact on debt money is the rupee-dollar equation. A stronger rupee or a strong dollar will have a different set of effects of the fixed income market," said Iyer, who oversees over Rs 60,000 crore assets.
Ajay Bodke, CEO & chief portfolio manager – PMS, Prabhudas Lilladhar, said that global markets are underestimating geopolitical risks that Trump administration's first 100 day policies could unleash. Not only on immigration, tough talk on building a wall on Mexico border and trade front but also security front by making provocative statements against China are important signals. "The unleashing of rising tariffs and falling currencies war have the potential to cause major asset dislocation and flutter in the seemingly sanguine global asset markets," said Bodke.
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