US elections: What a Donald Trump victory could mean for Dalal Street

With the stage set for the US elections, could a Donald Trump win spark a bullish turn for the Indian stock market, or will uncertainty keep investors on edge?

In Short

• US elections spark uncertainty in global stock markets, especially India
• Analysts split on Trump or Harris impact on Indian markets
• If Trump secures a victory, it may increase capital outflows from India

As millions of voters in the United States head to the polls, the global stock markets are on edge, particularly in India. The ongoing uncertainty surrounding the US presidential elections has led to a dip in the Sensex and Nifty, as analysts expressed mixed views on the potential outcomes of a Donald Trump-led Republican win versus a Kamala Harris-led Democratic victory for the Indian stock market.

According to Nomura India, a Trump victory could be a net negative for Asia excluding Japan, while a Harris win may be more favourable. Betting markets reflect this uncertainty, with Trump and Harris now nearly neck-and-neck in the odds.

“Our US economics team notes that US swing states will be the ones to watch on elections night, where early swing state calls will likely signal the candidate with greater momentum,” said Nomura. “A unified government is the most likely scenario under a Trump victory, while a divided government would be likely under Harris.”

Emkay Global indicated that stock markets might briefly celebrate a Republican sweep due to the rebound of US equities, though challenges to sustain this rally both globally and domestically remain. “Our equity strategy team believes that a Red Sweep would probably trigger a short-term rally, but its sustenance depends on earnings momentum and valuations, both of which are weak,” they stated.

Shlok Srivastav, Cofounder & COO of Appreciate, highlighted potential implications of a Trump win for global markets. “A Trump victory should ideally flag off the next leg of US market dominance over the global markets. It would also contribute to an accompanying rise in bond market yields, particularly the 10-year Treasury. A stronger US bond yield would exacerbate the capital outflows from the Indian markets, triggering another cruel spell of drawdowns,” he said.

He also pointed out the likely resurgence of protectionist policies reminiscent of Trump’s previous term, particularly affecting the IT sector.

“Between 2017 and 2020, the denial rate of H-1B visas ramped up, putting IT companies in a fix. With Trump coming to power, there could be employee and workflow disruptions leading to transitory, minor dents in the top lines of IT companies. However, the symbolic posturing behind the move will be sobering for a country like India, with a massive workforce looking to market their skill overseas,” Srivastav noted.

On the other hand, if Kamala Harris wins, it may have little immediate impact, as her policies are expected to closely align with those of the current administration.

In a report assessing the impact of the US elections on various domestic sectors, JM Financial laid out several potential scenarios. For banks and NBFCs, a Democratic outcome could lead to a rate cut by the Reserve Bank of India (RBI), benefiting NBFCs whose stocks rallied in anticipation of US Fed rate cuts. Conversely, a Republican win may tighten interest rates in the US, potentially hindering RBI’s ability to lower rates in India.

In the insurance sector, a steep yield curve favours life insurers, while a Trump victory could negatively affect insurance companies due to the absence of supportive policies. The IT services sector remains wary of renewed restrictions under Trump, though companies have increased local hiring to mitigate risks.

In pharmaceuticals, negotiations around drug prices under a Biden-Harris administration could present challenges for innovator companies, while a Republican win could leave these negotiations in flux. The healthcare sector could benefit from extended subsidies under a Democratic administration.

For auto ancillaries, a Trump victory could accelerate “China+1” de-risking strategies, although it may require Indian companies to invest in local US operations. Similarly, Trump’s energy policies could lower global oil prices, while his pro-India stance might yield benefits for Indian manufacturers in various sectors, including chemicals and textiles.

As the results of the US elections unfold, the ripple effects on Dalal Street and beyond will be closely monitored. Investors, businesses, and the Indian workforce alike are left to ponder what lies ahead, hoping for stability and growth in a world that feels increasingly unpredictable.

(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.)