US Presidential Elections 2024: Market impact and trading strategies by Gurpreet Sidana, CEO, Religare Broking

US Presidential Elections 2024: The U.S. election outcome is likely to influence Indian equity markets primarily through trade policies, foreign investment and currency movements, said Gurpreet Sidana, CEO, Religare Broking. The correction phase in Indian markets may persist as long as key influencing factors remain. Continued FII outflows, the U.S. Presidential Elections could maintain market volatility, added Sidana. Edited excerpts-

What will be the impact of the US elections outcome on Indian Equity markets?

The U.S. election outcome is likely to influence Indian equity markets primarily through trade policies, foreign investment and currency movements. A pro-trade U.S. administration could support growth in India’s IT and pharmaceutical sectors, while protectionist policies may add volatility, particularly for sectors dependent on exports. Additionally, shifts in U.S. monetary policy, such as potential interest rate changes, could impact global capital flows, with tighter policies potentially leading to outflows from emerging markets like India. While domestic factors remain key drivers, U.S. policy directions post-election could shape investor sentiment and introduce short-term fluctuations in Indian markets.

What are the Challenges faced by the Indian markets leading to steep correction?

The Indian markets have experienced a correction from record highs, primarily due to a few intersecting global and domestic factors. Earnings growth has been slower than anticipated, casting some doubts over the sustained momentum. FIIs have shifted focus, with significant outflows, largely due to increased global economic uncertainties. These uncertainties are fueled by inflation concerns, anticipated interest rate hikes, and the U.S. presidential elections, are adding to the risk-averse sentiment.

Additionally, geopolitical tensions and sector-specific challenges are creating cautious investor sentiment, with notable pressure on mid- and small-cap stocks. Key sectors, such as autos, have faced demand slowdown, while cement companies are impacted by reduced government spending on infrastructure. The broader financial sector, especially the unsecured and microfinance segments, has also seen asset quality concerns, making investors increasingly selective.

How long is the correction trend likely to continue?

The correction phase in Indian markets may persist as long as key influencing factors remain. Continued FII outflows, the U.S. Presidential Elections could maintain market volatility. Geopolitical tensions are further adding to the uncertain outlook. While this downward trend could extend into early 2025, selective buying in stocks with strong earnings performance is emerging, suggesting a cautious, bottom-up investment approach may gain traction until broader stability returns.

What trading and investment strategy investors may adopt now?

Post-Diwali, investors may find it beneficial to focus on quality stocks with a strong track record and solid growth potential. A stock-specific approach, emphasizing companies with robust fundamentals and growth strategies, can help navigate anticipated market volatility. Balancing a mix of large-cap, mid-cap and small-cap stocks within portfolios, while reassessing asset allocation, may enhance potential returns. For traders, hedged positions are advisable to manage risk while awaiting clearer market direction, especially given external economic factors and upcoming global events that could impact sentiment.

Which Sectors and segments have the potential to generate alfa returns post Diwali?

Post-Diwali, sectors like pharmaceuticals and real estate are expected to offer potential alpha returns, given their resilience and growth prospects. The pharmaceutical sector continues to show strength, while real estate may benefit from rising urban demand and possible supportive monetary policies. Selective investment in IT, especially segments focused on digital transformation areas like cloud computing and AI, also holds promise. Additionally, consumer goods could see gains from seasonal spending and balancing with stable sectors like FMCG can help manage volatility. Investors are advised to focus on fundamentally strong stocks across these sectors to optimize returns.

What will be the approach of FII towards Indian markets ? Will they continue moving out?

Post-Diwali, Foreign Institutional Investors (FIIs) are likely to take a cautious approach to the Indian markets, influenced by global economic conditions, geopolitical tensions and the outcome of the U.S. elections. While recent outflows indicate concerns over valuations and alternative opportunities abroad, FIIs may re-evaluate their stance if Indian valuations become more attractive and growth prospects solidify. In the near term, we may see FIIs adopting a selective approach, focusing on sectors with strong earnings potential. Domestic investors' resilience in absorbing FII sell-offs could also provide stability as FIIs reassess their positions in the coming months.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions