With the US Presidential election just around the corner, the Indian stock market is gearing up for potential turbulence. Market players are closely watching sentiment and economic data from the United States, which has already shown signs of impacting investor behavior and stock performance.
The current economic backdrop is defined by notable growth according to the latest reports. The US economy expanded at a solid pace during the third quarter of 2023, primarily driven by strong consumer demand, which is the cornerstone of economic growth. Specifically, the inflation-adjusted gross domestic product (GDP) saw annualized growth at 2.8% following a 3% increase the previous quarter, surpassing Bloomberg economists' median forecast of 2.9%.
Consumer spending—a major component of overall economic activity—jumped by 3.7%, marking the most substantial increase since early 2023. Following the release of this data, equity markets reacted markedly; both selling pressure on stocks and rising bond yields were observed, with benchmark equity indexes slipping between 0.2% and 0.6%. The Treasury yield on 10-year notes climbed to 4.3%. Clarity on the Federal Reserve's monetary policy direction will be pivotal as the market braces for its upcoming committee meeting next week.
Further heightening the stakes, the US will conduct its presidential elections on November 5. The lead-up to the voting has already started to stir up local Indian markets as traders speculate on how the elections might impact broader economic indicators, trade policies, and market volatility.
On the Indian front, recent economic indicators suggest tentative yet encouraging moves. Data from India's eight core sectors indicated 2% growth for September, rebounding from August's rare contraction of 1.6%, which was the first decline witnessed in 42 months. This upward tick was mainly driven by the refinery and cement industries, hinting at possible stabilization.
Despite these signs of improvement, challenges persist, particularly reflected by the Union government’s growing fiscal deficit. By September end, the fiscal deficit had ballooned to 29.4% of the budget target for the financial year, marking Rs 4.75 lakh crore against the total threshold of Rs 16.85 lakh crore. The shortfall was alleviated largely due to the Reserve Bank of India's (RBI) dividend payments earlier and sluggish growth in capital expenditure.
Encouragingly, tax revenues appear to be on track, with net tax receipts for the first half of the fiscal year already amounting to Rs 12.65 lakh crore—roughly 49% of the fiscal target. Non-tax revenue also showed promise, reaching Rs 3.57 lakh crore, or 65.5% of budget estimates.
Meanwhile, specific sectors, such as real estate, are experiencing noteworthy activity. The festive season surrounding Diwali saw over 11,800 property registrations within Mumbai alone during October, leading to property registration revenues soaring by 52% compared to the preceding year.
Back to the stock market's immediate reactions, traders are bracing for significant moves as the US elections close in. A remarkable surge has been noted as options traders initiate 'strangle' strategies targeting volatility typical of such high-stakes moments. This involves buying both put and call options with different strike prices but the same expiration date. Recent trading activity reflects heavy buying of call options with exercise levels near 24,500, along with comparable puts, underscoring the anticipation of sharp price movements on either side of the market.
The NSE Nifty 50, for example, has retracted more than 7% this month alone, impacted by hesitations around earnings growth from Indian corporations, against the backdrop of the US election results, which are closely watched as potential indicators of future trade relationships.
Despite pessimism over India's stock market performance recently, analysts at DAM Capital say the Indian steel sector remains poised for growth. They've issued buy ratings on major players like JSW Steel, Tata Steel, Jindal Steel & Power, and the Steel Authority of India, anticipating volume growth between 5% to 69% from fiscal 2024 to fiscal 2027.
This rosy outlook is attributed partially to anticipated recovery from potential supply cuts stemming from Chinese steel production, as tighter regulation on local mills adds pressure on exports and improves pricing discipline on the Indian market. The brokerage is highlighting potential upside for steel prices, projecting significant increases over the coming years.
Particularly, DAM Capital estimates JSW Steel could see its EBITDA per tonne rise to around Rs 15,000 by FY27 thanks to operational efficiencies and expanded capacities. Similarly, they predict Tata Steel could benefit from recovering European markets, enhancing its operating margins.
With all these factors at play—the US elections, local economic indicators, and the pursuit of sector-specific growth—Indian traders find themselves at the edge of their seats, closely watching how global events interconnect with local stock movements. While sentiment is mixed, the general belief is clear: volatility is on the horizon as major variables continue to pivot. Will the results from the US elections bring clarity or chaos to the markets? Time will certainly tell.
