Rupee may depreciate 8-10 per cent during Trump 2.0, says SBI report

The report emphasised that “the fear” that the rupee will depreciate sharply is unfounded.

During the Trump 1.0, it said, the rupee depreciated by 11 per cent, less than it depreciated during the Joe Biden term.

While a stronger dollar might result in short-term capital outflows for short-term as investors flock to dollar-based assets, on a positive note, a lower rupee might provide an export advantage, potentially boosting revenues in sectors like textiles, manufacturing, and agriculture, the research report said.

“Still, we expect a depreciation of 8-10 per cent during Trump 2.0,” the SBI research report said.

It also noted that the depreciation of the rupee may increase the import cost of oil and other commodities.

“As per our estimate, a 5 per cent decline in rupee will increase inflation by 25-30 bps. So, the impact will be very less on inflation,” it said.

According to the report, India may see shifts in foreign direct investments (FDIs) during Trump 2.0.

The Trump 1.0 administration saw significant regulatory changes aimed at attracting investments back to the US, and this was reflected in data also.

“However, India is no longer dependent on the traditional sources of FDI inflows…unlike the recent past, FDI is now coming in many new sectors like non-conventional energy, sea transport, medical and surgical appliances, etc,” it said.

This trend could continue, thus offsetting the possibility of a decline in FDI flows in traditional sectors in Trump 2.0, if any.

The SBI report further said if the Trump administration opts to limit work visas, particularly the H-1B visa programme, Indian IT and ITeS sectors may see increased costs.

H-1B visa restrictions can lead to decreased labour mobility, affecting the hiring capabilities of Indian IT companies operating in the US.

This, the report said, may result in Indian firms to allocate resources towards hiring locally in the US at a higher cost, which could strain margins for companies.

During Trump 1.0 the non-immigrant visas issued by the US largely stagnated around 10 lakh per year.

However, in 2023, about 14 lakh Indians received non-immigrant visas, the report said.