US Election 2024: Donald Trump's Win - Positive or Negative for Indian Stock Market

As millions of Americans prepare to head to the polls for the US presidential elections, global markets, especially in India, are facing heightened uncertainty. The outcome of the election is poised to have significant repercussions for the Indian stock market, with analysts offering mixed views on how a potential victory for Donald Trump or Kamala Harris might impact key indices like the Sensex and Nifty.

The Impact of a Trump vs. Harris Election Outcome

Market reactions to the US elections have been volatile, with India’s Sensex and Nifty experiencing dips amid the ongoing uncertainty. According to Nomura India, the impact of a Trump victory could be a net negative for Asia (excluding Japan), while a Kamala Harris win may be more favorable for the region, including India.

Betting markets reflect this uncertainty, with the odds on Trump and Harris now almost neck-and-neck. Nomura's analysis suggests that swing states in the US will be critical to watch, as early results from these states will likely indicate which candidate has the upper hand. They note that a unified government is more likely under a Trump win, whereas a divided government would likely emerge if Harris were to claim victory.

Short-Term Rally with Potential Challenges

According to Emkay Global, a Republican sweep could lead to a short-term rally in US equities, which may spill over into global markets, including India. However, the firm cautions that the sustainability of this rally will depend on earnings momentum and valuations, which are currently weak. They argue that while a Red Sweep might initially trigger positive sentiment, the longer-term outlook remains uncertain.

Shlok Srivastav, Cofounder and COO of Appreciate, also discussed the potential global market implications of a Trump victory. He believes a Trump-led administration could mark a resurgence of US market dominance. He predicts that a victory for Trump would likely drive bond yields, particularly US 10-year Treasuries, higher. This would, in turn, lead to capital outflows from emerging markets like India, possibly triggering another round of sell-offs on Dalal Street.

Srivastav also highlighted the possibility of renewed protectionist policies under Trump, similar to those seen during his first term, which could significantly impact India’s IT sector. He noted that between 2017 and 2020, the denial rate for H-1B visas had surged, putting pressure on Indian IT companies. A second term for Trump could lead to further disruptions in the IT sector, including employee and workflow challenges that could negatively affect earnings in the short term.

Kamala Harris Victory: Status Quo for Markets?

In contrast, a victory for Kamala Harris is expected to have little immediate impact on global markets, as her policies are expected to align closely with those of the current Biden administration. In particular, Harris is likely to maintain the existing stance on international trade and foreign policy, which may offer a sense of stability for markets.

Sectoral Impacts: Banking, Insurance, IT, and More

Several sectors in India are likely to be impacted by the US election results, with each potential outcome offering distinct challenges and opportunities.

Banking and NBFCs: A Democratic win, especially under Kamala Harris, could prompt a rate cut by the Reserve Bank of India (RBI), which would benefit Non-Banking Financial Companies (NBFCs). Conversely, a Republican win could result in tighter interest rates in the US, limiting the RBI's ability to reduce rates in India.

Insurance: The life insurance sector is likely to benefit from a steeper yield curve, while the sector could face challenges if Trump wins, due to the absence of supportive policies. Life insurers might find it harder to navigate the environment created by a Trump administration.

IT Services: The IT sector is one of the most sensitive to US policy changes. Trump’s re-election could lead to renewed visa restrictions and protectionist measures, which could affect India’s IT industry. Companies have already begun to increase local hiring to mitigate these risks, but the long-term implications remain uncertain.

Pharmaceuticals: A Biden-Harris administration could introduce stricter drug pricing negotiations, which could harm Indian pharmaceutical companies. A Republican victory, on the other hand, might keep these negotiations in limbo, offering some level of uncertainty but potentially fewer restrictions.

Automobile Ancillaries: A Trump victory could lead to increased “China+1” strategies, which would see Indian companies investing more in the US market to diversify their supply chains. While this could benefit Indian auto ancillary firms, it would also require substantial investment.

Energy and Manufacturing: Trump’s energy policies, which could push down global oil prices, might benefit Indian manufacturers in sectors such as chemicals and textiles. His pro-India stance, especially in trade, could also yield positive outcomes for certain Indian manufacturing sectors.

Conclusion: A Wait-and-See Approach

As the US election results unfold, Indian investors and businesses are bracing for the ripple effects on Dalal Street and beyond. The uncertainty surrounding the potential outcomes of the US elections leaves much to be desired in terms of clarity, and the market's reaction will depend heavily on the direction the US takes politically.

For now, the global market, including Indian stocks, remains in a state of flux, with investors hoping for stability and cautious optimism that whichever candidate takes the White House will steer the world’s largest economy towards growth. Whether that outcome translates to positive momentum for India’s stock market remains to be seen.