Donald Trump vs Kamala Harris: How US elections may impact Indian stock market

With the US election just a day away, Indian markets prepare for shifts across sectors from tech to oil. What could this high-stakes race mean for investors on Dalal Street?

In Short

• Dalal Street braces for impact ahead of US election results
• IT, pharma, defence sectors in focus ahead of US election outcome
• Democratic win seen as steady for markets; Trump's win complex

With the US presidential elections just a day away, the November 5 showdown between Republican Donald Trump and Democrat Kamala Harris has global markets on edge. The outcome is likely to have a major impact on the Indian stock market, impacting key sectors from IT and pharmaceuticals to defence and oil.

The outcome holds distinct implications for India’s stock market, as investors weigh potential shifts in trade policies, economic strategies, and the broader US-India dynamic.

This election is one of the most anticipated in recent years, with polls reflecting a tight race. According to Gaurav Garg of Lemonn Markets Desk, a Trump victory might bring short-term cheer to equities on hopes of business-friendly policies, while a Democratic win is expected to keep markets relatively steady.

“Polls show the election is a toss-up and, in our view, a Democratic victory is more of a status-quo outcome for markets. In a Trump presidency, we could see positive momentum in equities on hopes of more business and tax-friendly policies, though the medium-term picture may be more complex,” he noted.

A Trump win could, however, revive the specter of trade tensions, with potential impacts on the US dollar and Treasury yields. “Threats of trade wars and possible pressure on the US Fed’s independence could prompt strong reactions in the US dollar and Treasury yields, which may, in turn, impact global equities and commodities,” added Garg.

With a stronger dollar and rising benchmark yields, emerging markets like India could feel the squeeze as foreign investors shift their portfolios back toward the US.

WHAT ABOUT VARIOUS SECTORS?

The US election's impact goes beyond the headline indices, reaching deep into export-driven sectors that depend heavily on global policy stances. In information technology, for instance, both Republican and Democratic policies may exert pressure, as onshoring becomes a priority in the US.

While higher corporate taxes under a Democratic administration might curb tech spending, a Trump victory could offer openings for Indian midcap IT firms if he follows through on revoking China’s Most Favored Nation status.

The stakes are similarly high in the pharmaceutical sector, where both parties share a goal of reducing prescription drug prices, albeit through different means. Republicans aim to boost competition among generics—a move that may disadvantage US-based generic companies.

Meanwhile, Democrats advocate for accelerated generic approvals, potentially benefiting generic drug makers with a faster path to market.

Beyond tech and pharma, Trump’s "America First" manufacturing policies could benefit Indian subsidiaries of multinational corporations. His administration is also seen as more supportive of traditional oil and gas, affecting pricing dynamics for Indian upstream and downstream operations. In defense, Trump’s approach to streamlining supply chains could lend a boost to India’s defense sector, while Harris’s focus on climate policy and energy infrastructure might expand demand for Indian solar exports.

MARKETS UNDER PRESSURE

Indian markets are already feeling the weight of the upcoming US election, amplified by the upcoming US Federal Reserve meeting. Following a brief pause during Diwali’s muhurat trading, markets saw a fresh downturn, pressured by the dual uncertainties of the election and potential Fed policy changes.

Garg noted that, fundamentally, the Indian stock market remains on fragile ground, with Q2 earnings disappointments and valuations that are yet to dip into the attractive zone despite a recent 8% pullback from late September’s record highs. “Nifty 50’s forward P/E still sits at 21.2x, around 15.7% above its 10-year average,” Garg points out.

Foreign investors remain wary, having pulled a record Rs 1.14 lakh crore out of Indian markets in October alone. The upcoming US election has further stoked risk aversion, with global markets bracing for potential post-election volatility.

“We’re already seeing the impact of these safe-haven flows,” Garg added, with many investors seeking shelter in more stable asset classes.

PAST TRENDS

Interestingly, past data reveal that the Nifty 50 index has often delivered positive returns in the months following a US presidential election, providing some reassurance to those anticipating market reactions.

While equity markets are driven by a myriad of factors, the size and global influence of the US economy mean that its election outcomes tend to have an outsized effect.

“In an election year, markets are especially responsive to potential shifts in policy that could steer global growth,” noted Garg, adding that “markets are forward-looking, meaning they build expectations around likely election outcomes well in advance.”

Looking back at past US election cycles, the Nifty50 performance generally shows a positive trajectory in the 1-month, 3-month, and 6-month periods after election day.

However, Garg cautions that while these historical trends are informative, they should be taken with a grain of salt as various factors contribute to market performance. The influence of an election is one among many.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)