As the Donald Trump-led Republican Party is leading in the US Elections 2024, the markets globally are affected and highly volatile today. Indian markets were sluggish in the morning, but it started moving up when Trump took the lead. Sensex and Nifty 50, both the broad market indices have gained above 1% until 2 p.m. and the rally seems to sustain. However, will it sustain for long or the effect will be fed out? How did the US elections affect Indian stock markets? Does it have a long-term effect or a shorter one? Let’s find out the US election’s impact on the Indian stock market.
Experts/ Analysts Take
The overall view of the analysts and the market experts is that if Trump wins it can lead to a net negative sentiment in the Asian market including India, and excluding Japan. However, India will be the least affected given the high FPI inflows. On the other hand, a net positive outcome will be there if Harris wins the US presidential election polls.
The experts believe the rally in the stock market if happens post Trump’s win, then it will be short-lived. The market rally will be an outcome of the rebounding of the US equities but in the long run, there are multiple challenges to hinder that rally both in the domestic and global market.
However, India with its FPI positioning and Flows front seems to be least affected while Chinese equities can again come under pressure due to a rise in uncertainties. That said, the valuations and earnings of the Indian stocks are weak too which will pose challenges as well.
US Election’s Effects on Sectors
While the general overview seems to be negative in the current scenario as Trump is winning will all the sectors become sluggish if Republicans win? Let’s dig deeper –
Banks, NBFCs & Insurances
According to experts, a win of the Democrats can bring in rate cuts which can help the banks and NBFCs to boom. This sector has been rallying since July in the hope of another rate cut around the end of the year.
However, if the Republicans win then it would lead to a stricter interest rate regime which can again push back RBI to take a backseat regarding interest rate cuts and will affect the NBFCs adversely. However, the recent corrections in the PSU bank stocks can play a beneficial role for them as predicted by JM Financials.
The life insurance sector can see a steep yield curve which will be beneficial for them given Democrats win the US elections in 2024.
IT Services
IT services in the earlier Trump reign were adversely impacted due to policies like curbing H-1B visas, higher processing fees, and others. However, times have changed, and Indian IT services are not highly insulated against such anti-immigration policies compared to 2016 when Trump first came into power.
Pharmaceuticals
The current government in the US has negotiated prices of selected prescription drugs under Medicare policy and this led to lower prices of drugs but that took a toll on the pharma companies. However, these are the high-range drugs that have become less expensive, and thus it has no neutral effect on the generic drug-producing companies in India. Trump-led Republicans have not commented anything on this and their stance on this is yet to be disclosed.
Auto ancillaries
India’s auto ancillary businesses can boom if Trump comes into power as that would lead to higher tariffs on imports from China in the US. The importers will eventually look for another option which is China + 1 and India comes first on that list. However, Trump’s protectionist policies may result in Indian companies in this space needing to invest in the US for localizing supplies instead of directly exporting from India.
Oil & Gas
This sector can also be adversely affected by Trump’s win as he has promised to end the Middle East and Russia-Ukraine tension which adds to the volatility of fuel prices and risk premium. In addition, his probable approval for a new US LNG export plant can further normalize prices of spot LNG which are quite high currently.
Realty
Trump’s win can lead to a sluggish real estate market, especially for commercial spaces and office rentals. This is because of his America-first policies which lead to slower interest rate cuts, and less outsourcing of IT and services projects to India and other emerging countries. With less work from the US, the Indian service sector occupies most of the official spaces on rent contracts can struggle so do the office landlords and owners.
Textiles
If Trump comes into power, it would lead to a stronger US economy which can in turn improve the demand for Indian textile products in the West. Retail shipment and exports of apparel from India seem to increase with Trump’s win.
Chemicals
Chemical companies can witness positive growth if Trump wins as his anti-China policies can help the Indian chemical firms see a rise in demand for their products. This is irrespective of the imposition of 10-20% tariffs on Indian imports, as even then Indian chemicals would be cheaper than the Chinese ones.
Solar Cells and Modules Exporters
The current barriers imposed by the US on China over the import of solar PV cells and modules have already made Indian solar energy firms richer. In FY21, the export of solar modules from India to the US stood at Rs. 600 crore while that has jumped to Rs. 10500 crore in FY24 YTD. Now, Trump’s win can fuel this further and that can be a huge thing for the Indian renewable industry as a whole.
Wrapping up
Today market ended on a positive note with significant gains as Trump inches towards winning the US elections. However, it will be interesting to see how to markets hold up to this win in the long run and investors should consider all the possibilities before making any investments now.
Source: BusinessToday
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