Will the US elections affect the Indian stock markets?
Joe Biden or Donald Trump is the question and the answer is still unknown. Will things change in the Indian stock markets because of this event?
The US presidential elections are done. The two candidates, Republican Donald Trump and his Democratic competitor Joe Biden, are having a close fight. Trump, 74, and Biden, 77, have tried their best to convince voters of the plans and policies they will implement if they are elected. It may be difficult to predict the outcome of the US Presidential Elections.
Indian markets have had a rough couple of weeks in October on account of the US elections that were held on Tuesday, November 3. The results may not be clear for some time. All stock markets will remain volatile till then.
However, investors feel that from an Indian perspective, markets might cheer a Joe Biden win. Why? This is because favourable foreign policies are anticipated from Biden. If Trump comes to power, the geopolitical stance might have a negative impact on the Indian stock markets. However, irrespective of whoever wins, the fiscal stimulus that they will come out with might have an impact on all the emerging stock markets.
However, India might benefit in any scenario. There is an analysis by UBS Group AG that states that India will benefit irrespective of who wins the US elections.
India- a beneficiary
As per UBS Group AG’s analysis, the US elections will help India emerge as one of the biggest beneficiaries in Asia Pacific. This is irrespective of the outcome. The analysis talks about the potential impact of the elections on a number of the region’s biggest markets. It considers three scenarios. One is a Biden/Democratic sweep, second a Biden victory and divided Congress and then a staus quo Trump victory. In each of the scenarios, it says that India will be the winner. The study which was published a few months back takes into account factors such as Federal Reserve policy, fiscal spending on infrastructure and trade and foreign policy.
How will it benefit the country? In case Biden sweeps the elections, India will benefit from the possible favourable U.S. trade policies that he might come out with. If Trump wins or if it is Biden with a divided Congress, the easy Federal Reserve policy will help India. Since India offers high yield over U.S. treasuries, there might be more capital inflows into the country. This is if the interest rates in the US remain low.
What are the stocks/industries to watch out for?
India’s information technology and pharma stocks are the ones that investors need to keep their eyes on as these will have an impact because of the outcome of U.S. presidential elections. Any changes in taxation, trade and immigration policies, and currency movements will affect these stocks, especially IT companies. How? If there is a fiscal stimulus announced, the dollar will weaken while the rupee will strengthen. A stronger rupee will lead to reduced repatriated earnings for IT companies.
What is likely to happen?
In the coming weeks, we may see increased volatility in the Indian stock markets. However, in the long run, the Indian markets might actually ignore the US election outcome. Investors must understand that India’s big technology companies have managed to do well in spite of Donald Trump’s policies to restrict H1-B visas in America. The Foreign Institutional Investors (FII) will provide some direction to the markets in the near term.
When the US election outcome becomes clearer, the fundamentals and earnings growth of the companies in India will be important. The earnings season will help the markets. The early results from corporates are encouraging. Till now, most of the popular companies that have released their earnings have earned profits that are more than 10% year-on-year.
Another reason for cheer is that the Indian government has announced that the lenders will credit the ‘interest on interest’ waivers to the accounts of small borrowers. This will help improve consumer sentiments.
Another point is the re-balancing to the MSCI Emerging Market index. At the end of November when the index is rebalanced, India’s weights will increase by 60 basis points in the index. This is expected to lead to higher investments in the Indian stock markets.
Since rainfall has been adequate this year, rural incomes are set to improve. Financial companies will see better availability of credit and things might start looking up in the upcoming year. Investors should take note of earnings announcements by companies.