With the US presidential elections set for November 5, 2024, both the American and global markets are bracing for potential changes, especially as they pertain to investor sentiments and economic predictions. The stakes couldn’t be higher for India’s stock market as it stands on the edge of what could be significant shifts influenced by the eventual leader of the United States—be it the incumbent Democratic candidate Kamala Harris or the former Republican President Donald Trump.
The outcome of the elections is likely to impact various sectors on Dalal Street, with analysts already assessing potential moves as investors weigh their options. According to Gaurav Garg from the Lemonn Markets Desk, the upcoming election is generating mixed feelings among traders. “While polls suggest this may be tighter than anticipated, our research leans toward the potential for increased volatility regardless of who emerges victorious,” he remarked.
Polls have indicated a degree of anti-incumbency, which could bode well for the Republican party; they show Trump leading by narrow margins. If he were to return to the Oval Office, many hope he would bring back pro-business policies. Yet, there's caution here, as Trump’s presidency could also mean revived trade tensions, affecting the US dollar and impacting global markets, including India.
With the markets already feeling the weight of upcoming election uncertainties, many are focusing closely on eight sectors likely to feel the most significant impacts from either candidate, namely IT, pharmaceuticals, oil and gas, and defense industries. For investors, Democrats winning might mean consistency, as their expected approach would not stray too far from current strategies, whereas Trump’s policies could either invigorate or cause disruption across different sectors.
For the tech industry, Garg highlights the contrasting policies: “A Trump victory might not only spur additional business-friendly rules but potentially repeal China’s Most Favored Nation status, which could allow Indian mid-cap firms to flourish.” On the other hand, higher corporate taxes proposed under Democratic leadership could lead to restrained corporate spending.
Continuing with the pharmaceutical sector, both parties are committed to reducing prescription drug prices but plan to achieve their goals differently. While Trump’s agenda includes intensifying competition among generics—which might inadvertently harm US-based generics—Democrats aim to expedite FDA approval processes, potentially hastening the entry of generic drugs to the market.
Moving to traditional energy sectors, the dynamics shift yet again. Trump supporters foresee positive ramifications with his focus on oil and gas, which might set favorable price points for Indian upstream and downstream operations. Alternatively, Kamala Harris's focus is expected to expand investments in renewable energy, augmenting demand for India’s solar energy exports.
Yet, not all is sunny on Dalal Street as market forces remain apprehensive. The Nifty 50 index recently saw itself under pressure, dampened not only by the looming election but also by the Federal Reserve's anticipated strategies surrounding interest rates. Following the festive trading period of Diwali, fears surrounding the projected election outcomes augmented investor caution, with reports indicating foreign investors pulled out over 1.14 lakh crore INR from Indian markets this past October.
Despite this pressure, past trends show positivity. Historically, following US presidential elections, the Nifty 50 index has often recorded positive returns. Garg noted, “Investors tend to build expectations around likely outcomes, so the presiding sentiments can shape the overall market mood well before the election.” This viewpoint resonates with those awaiting possible rebounds as the market reacts to the eventual election results.
Looking back to past election cycles, the Nifty50 typically shows upward trends within one month, three months, and six months post-election, offering some reassurance to jittery investors. This trend might incite optimism, but it is advised to maintain prudent caution as various factors can influence market reactions.
Interestingly, even past elections did not come without considerable market predictability challenges. Fluctuations often occurred, with analysts noting possible anomalies driven by unanticipated political decisions and economic shifts driven from Washington. Therefore, the balance seems fragile as stakeholders assess their investment moves.
According to experts, the fluidity of the upcoming elections presents several uncertainties, compelling investors to stay cautiously aware of shifting market sentiments. “Equities and other asset classes will likely respond to the outcomes, with reactions echoing through all sectors,” Garg cautioned, emphasizing the need for investors to remain vigilant as election day looms.
Consequently, the approaching election will serve as more than just another political affair; it looks set to orchestrate the complex dance of Indian stock markets, balancing risk and opportunity on the precipice of significant political transitions across the globe. Investors have their fingers crossed for stable economic policies to bolster growth, but as the election nears, much remains uncertain.
