India Poised to Benefit the Most Among Emerging Markets Amid US Economic Policy Shift

With the United States experiencing a change in its economic policies, emerging markets are likely to see a big rally, with India being the largest beneficiary as there is a revival of foreign institutional investor (FII) inflows, a new report indicated on Wednesday.

A fundamental shift in global economic trends is in progress, powered by the changing fiscal and monetary policies of the US administration.

"This change will form investment opportunities, nudging investors to navigate the evolving landscape with strategic vision," said Emkay Global Financial Services in its recent 'India Strategy Report.'

With capital shifting away from dollar-denominated assets, India's robust macroeconomic footing, investor-friendly policies, and attractive market valuations make it a destination of choice for global capital, the report identified.

The Indian market, having already gained 4.5%, should continue on a rising trend led predominantly by accelerating FII activity.

"India stands to gain heavily from this re-shifting of the world economy. Softening dollar and falling US bond yields will compel foreign institutional investors (FII) to make a beeline for Indian shares," the report said.

Also, India's economy is well-supported by sound fiscal steps and easy monetary steps, bolstering its attraction as an investment destination.

As the global capital shifts towards non-dollar assets, Emkay sees Indian markets sustaining a rally.

"Investors should remain oriented towards domestic consumption, investment, and capital goods industries and scale down exposure to US market-dependent businesses," the report recommended.

Banks and non-banking financial institutions (NBFCs) are likely to spearhead this upsurge. The phase of correction for Small and Mid-cap (SMID) stocks has seemingly come to an end, indicating increased potential for growth. Moreover, domestic consumption and capital investment are likely to witness strong expansion.

The Trump administration is charting a major economic policy changeover, shifting from a "loose fiscal and tight monetary policy" approach to a "tight fiscal and loose monetary policy" strategy.

This strategic action is intended to deal with macroeconomic imbalances as well as reaffirm the US's leadership in global GDP (24%), market capitalization (70%), and the position of world reserve currency. The policy reforms of the administration—covering fiscal consolidation, tariff hikes, and wider economic realignments—are meant to guarantee long-term economic stability.

"As the US resets its economic strategy, India will be positioned to draw high foreign investment as a result of a weaker dollar and lower bond yields," concluded the report.