Here’s what the result of the US elections could mean for Indian stock market

• Global stock markets, including India, have witnessed a bout of volatility in the run-up to US elections. Most analysts believe that short-term volatility is likely to remain, irrespective of the verdict, but a Biden victory may be favourable for India in the long run.
• Abhimanyu Sofat, head of research at IIFL Securities, believes that Trump’s victory will simply lead to the continuation of the current stalemate in global trade.
• Biden’s win may play out well for the IT sector compared to Trump, analysts at Angel Broking believe.

Stock markets around the globe saw the worst October this year, given the resurgence of COVID cases worldwide. But one other reason for the caution was the US Presidential elections. Indian stock-market index, Sensex, has shed over 222 points in the past one week, and if we eliminate today’s trading gains, the loss goes above 772 points in a week.

The race to the White House is a keenly tracked global event. While it may be challenging to anticipate the outcome this time around, the impact on Indian markets is likely to be positive, according to UBS. They believe that if Biden comes to power by winning both houses of Congress, India will benefit from “potentially more favourable US trade policies.”

Why is the US Presidential election important for India?

Analysts believe that this time around, there is likely to be some delay around the verdict of US elections. Also, the possibility of it being contested in the Supreme Court will lead to volatility in the markets. “The US election is important for India not only economically but also strategically,” said Binod Modi, head of the strategy, Reliance Securities.

Joseph Thomas, head of research at Emkay Wealth Management, said the markets in India might see heightened volatility in the run-up to the elections and immediately after that. “This volatility is the result of a perception that there could be drastic changes in the US policy depending upon who is going to win.”

Jyoti Roy, equity strategist, Angel Broking, explained that a favourable outcome of the US elections results would result in a risk-on environment leading to strong foreign portfolio investment flows for India. Whereas, an adverse outcome of the US elections, on the other hand, will result in a global risk-off environment, which will lead to foreign institutional investors pulling out money from India and put pressure on the markets.

How Biden’s victory may play out for India equities?

The sectors which may continue to benefit as far as India is concerned is technology, pharma and healthcare, insurance and the consumer sector. According to Modi from Reliance Securities, no matter the outcome of US elections, the relations with India would continue to remain good given recent geopolitical developments. However, the democratic party’s win in the election can result in higher fiscal stimulus and favourable immigration policies, which bodes well for emerging market equities, including India.

Angel Broking’s Roy also said Biden’s victory would also be extremely positive for the IT sector as the restrictions placed on H1B visas by the Trump administration are likely to be reversed. And, “In such a scenario, we would also recommend HCL Technologies and Persistent systems as our top picks from the IT space in case of a Joe Biden victory.”

Whereas Amit Jain, Chief Strategist - Global Asset Class, Ashika Group, said “If Biden wins then you may see the World be back to Pre-Trump era, where you will see much better trade relations within the World Economies. This may benefit all the sectors, as we may see much better harmony and trade relationships within the world economies.”

What if Trump wins?

Abhimanyu Sofat, head of research at IIFL Securities, believes that Trump’s victory will simply lead to the continuation of the current stalemate in global trade. Hence, nothing major is expected pertaining to any specific sector.

However, Angel Broking said, “Trump’s victory will be positive for cyclical sectors like Auto, Banking and small-ticket consumer durables.” In the Auto sector, they prefer two-wheeler stocks with Hero Motocorp and Endurance Technologies as their top picks. Cholamandalam Investments and IDFC First Bank are the top picks in the BFSI space, while Hawkins Cooker is the top pick consumer durable space, Roy added.

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