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13 Feb 2017

IT, pharma cautious, gold investors rejoice over Trump temper

What Trump's days bring for investment markets?

Uncertainties surrounding US President Donald Trump's trade policies have reinforced Indians' faith in gold being a safe asset.

Pharma shares suffered after Trump said he will create new rules for bidding on drugs for government programmes.

IT shares fell last week after White House spokesman Sean Spicer indicated that action could be taken on H-1B visas as "part of a larger immigration reform effort".

In context

What Trump's days bring for investment markets?
Indirect comfort for gold finance companies


Indirect comfort for gold finance companies

Tax cuts and fiscal spending that Trump has proposed could make inflation higher. Investors buy gold when consumer prices rise, hoping it preserves value better than other assets.

Domestic gold price is based on the USD gold price, so gold value appreciates when USD increases against Rupee.

Investor optimism has been low since Trump won. If equities are dented, investors will opt for gold.


Why pharma is worried about the US president's policies?

Pharma shares fell after Trump lambasted pharmaceutical companies for overseas manufacturing and expensive drugs. In his first press conference as president, Trump claimed the industry was "getting away with murder".

Indian generic drug companies are already constrained by the American pricing structure. Their profit margins face challenges like consolidation of the distribution channel, rising competition, price erosion of 8-9% in base business among others.

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What did Trump exactly say about pharma?

"Our drug industry has been disastrous. They're leaving left and right. They supply our drugs but they don't make them here, to a large extent," Trump said, adding "the other thing we have to do is create new bidding procedures for the drug industry."

Restrictions on IT's favourite H-1B visa


Restrictions on IT's favourite H-1B visa

Shares in India's three largest tech firms took a hit after the US administration announced that restrictions could be imposed on the 85,000 H-1B visas, that is grabbed by high-skilled Indian IT workers. India's outsourcing industry is worth around USD 108 billion.

Three bills have been introduced to US Congress to restructure the H-1B visa programme, making outsourcing expensive for Indian IT firms.

What is OPEC and how is India dependent on them?

India imports 85% of total oil and 95% gas from Organization of the Petroleum Exporting Countries (OPEC) nations, such as Iran, Iraq, Syria, Kuwait, Saudi Arabia, Bahrain, Qatar, the UAE, Oman, and Yemen. OPEC influences decisions on oil and gas pricing in India.


Effect of Trump's energy policy on investments

In November, clean energy investors were alarmed after Trump (then President-elect) termed the idea of climate change as "hoax". He also promised to help oil and gas companies by cutting regulation and encouraging drilling.

However, India will benefit when the US oil sector opens as it will lead to price stability globally. India's dependence on OPEC will reduce and ONGC can expand globally.

Store sales pick up after Trump outrage

In another interesting development, several Hollywood celebrities shopped at Nordstrom stores after Trump tweeted against the brand for banning his daughter's merchandise. As the Nordstrom stocks shot up, Sears and Kmart also stopped selling Trump Home furnishings products online "to focus on most profitable items".

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