Although the outcome of the US election 2024 may not immediately cause a knee-jerk reaction in the Indian stock market, it is expected to significantly impact Indian investors in multiple ways.
As a major economic and military power, the United States policies and strategies could significantly impact India, especially in defence, trade, and strategic relations between the two countries.
Experts say the newly elected US President's economic policies will directly affect India’s exports and investment flows and could impact overall economic growth.
Subho Moulik, Founder and CEO of Appreciate, pointed out that this election is different because the hot-button topic is not economic growth, which has been robust in recent quarters, but prices and inflation, which have been difficult to control and have impacted affordability and disposable income.
"As far as the impact on the Indian market is concerned, both mainstream US parties are cognizant of India's rising stature on the global demographic map, and any US administration will look to partner with India from an economic and security perspective. Marginal ups and downs in the Indian markets immediately following the election of a new US President should be ignored as it is a case of correlation rather than causation," said Moulik.
Here are five key ways in which the outcome of the US election could affect Indian investors:
1. Impact on global market sentiment: Uncertainty surrounding US elections causes fluctuations in global financial markets. A volatile US market can lead to fluctuations in the Indian stock market.
2. Trade policies: The trade policies of the new government can influence India's exports and imports in some key sectors, which are closely linked to the U.S. economy, like IT services, pharmaceuticals, and textiles.
According to Deepak Jasani, the head of retail research at HDFC Securities, if Kamala Harris becomes president, she may carry forward most of the trade policies of the Biden administration. On the other hand, Donald Trump may pursue a more transactional approach with greater scrutiny of the trade imbalance and migration.
"Trump is known to have recently blamed India for high tariffs. He may prioritise immediate US interests over long-term strategic alliances. He has a history of taking a hardline approach to immigration. During his first term, Trump introduced restrictions on H-1B visas, making it more difficult for Indian IT professionals to work in the US," said Jasani.
3. Rupee's strength: Experts underscore that the US election outcomes can affect the strength of the US dollar. A stronger dollar can lead to foreign capital outflows from emerging markets like India, depreciating the Indian rupee.
4. Foreign direct investment (FDI): The US government's trade policies will significantly influence foreign direct investment in India. However, in the current geopolitical structure, experts find it unlikely that the US administration will take steps that severely harm its trade ties with India.
"Given the current geopolitical climate, marked by China's assertiveness and Russia's positioning, the US will continue to value its partnership with India as a key ally in the Indo-Pacific region," said Arpit Jain, Joint MD, Arihant Capital.
"While the candidates may differ in their approach, the US-India relationship will likely remain resilient and robust. India plays a critical role in the US's broader strategic framework," said Jain.
5. Interest rate trajectory: Experts say Trump's victory may influence the Federal Reserve's policies on interest rates. Any decision to raise or lower rates can impact global liquidity, affecting equity and bond market investments. If interest rates decline further, it might lead to higher foreign investments in India. Conversely, higher rates could trigger foreign capital outflow.
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