As the U.S. elections wrap up, the world waits for the official results. With Kamala Harris and Donald Trump each offering vastly different approaches, financial markets worldwide, including India, are awaiting how the next U.S. president’s policies will shape everything from trade to interest rates.
Indian markets have already seen the impact of rising uncertainty due to the US election results and Fed Policies, poor Q2 results, high valuations, and strong foreign outflows. U.S. elections have historically led to short-term volatility in global markets, especially for export-driven economies like India. While a Democratic win under Harris is expected to bring a more stable outcome with continuity of existing policies, a Trump victory may revive bold economic changes that could drive rapid market movements.
Historical Impact of US Elections on Indian Markets
The last time Donald Trump was elected, in 2016, Indian markets showed immediate volatility. On the election results day, India’s Nifty 50 index fell by 1.31%, driven by fears of U.S. trade protectionism and tighter immigration rules. However, long-term trends show that markets eventually stabilize, irrespective of which party wins.
Current Impact of US Election Results on the Indian Stock Market
The 2024 U.S. election will influence several key sectors in India:
1. IT Sector:
- Harris Approach: The Democratic candidate is seen as more supportive of immigration policies that favor Indian IT companies. With fewer restrictions on H-1B visas, Indian tech firms could maintain their strong U.S. presence. However, Harris’s proposed corporate tax increases might limit U.S. tech companies’ spending on outsourced services, which could negatively affect Indian exports.
- Trump Approach: A Trump win would likely mean tighter immigration controls, which could hurt large Indian IT firms. On the other hand, Trump’s approach to revoking China’s Most Favored Nation status could boost outsourcing opportunities for mid-sized Indian IT firms.
Implication: Harris’s approach would provide broader support for India’s IT industry, but Trump’s aggressive policies could create opportunities for mid-sized companies.
2. Pharmaceuticals:
- Harris Approach: Democrats aim to reduce prescription drug costs by speeding up the approval of generics. This would benefit Indian pharmaceutical companies that export generic drugs to the U.S. market.
- Trump Approach: Trump’s strategy to increase competition in the generic drug market might create price pressures but would benefit Indian pharma companies, which are highly competitive on cost.
Implication: Both candidates’ policies could benefit Indian pharma companies, but Harris’s faster approval system may offer more immediate gains.
3. Defense:
- Harris Approach: Harris’s more diplomatic approach might slow U.S. military spending, affecting Indian defense exporters indirectly by reducing opportunities for collaborations on defense contracts.
- Trump Approach: Trump’s strong stance on military spending and efforts to streamline supply chains could benefit India’s defense industry, creating more opportunities for partnerships with U.S. defense contractors.
Implication: Trump’s focus on defense spending would likely benefit Indian defense companies, which are part of the global supply chain.
4. Oil & Commodities:
- Harris Approach: A Democratic administration’s focus on clean and green energy could lead to more regulations on traditional energy sectors, potentially increasing global oil prices, which could hurt India’s import costs.
- Trump Approach: Trump’s support for traditional oil and gas exploration could keep oil prices low, benefiting India’s downstream companies, that is, oil importers like HPCL, BPCL, and IOC.
Implication: Trump’s policies would likely be more beneficial for India’s energy security, keeping oil prices low and reducing India’s energy import bills.
5. Textiles:
- Harris Approach: The Democratic candidate would likely maintain stable trade relationships, which would benefit India’s textile exports to the U.S.
- Trump Approach: By imposing trade barriers on China, Trump could open opportunities for Indian textile companies to capture a larger share of the U.S. market.
Implication: Trump’s aggressive stance on China could provide a significant boost to India’s textile sector, but Harris would ensure steady growth through stable trade policies.
Overall Impact of the U.S. Election Results
Harris Administration:
A Harris administration is expected to follow the path set by the Biden presidency, emphasizing global cooperation and diplomacy, especially toward the Russia-Ukraine war.
Moreover, analysts believe that under a Harris presidency, the Federal Reserve would maintain its independence, allowing it to manage interest rates based on economic conditions. The expectation is for lower interest rates to support economic growth, which could result in a weaker dollar. A weaker U.S. dollar would reduce the cost of Indian exports, especially in sectors like IT, pharmaceuticals, and textiles, boosting the competitiveness of Indian goods in global markets. The weaker dollar also eases India’s import bill for commodities like oil, as oil is priced in dollars, lowering costs.
Trump Administration:
Trump’s foreign policy, in contrast, is likely to be more pro-Russia, as seen in the past. He might push for a swift end to the war, which could reduce geopolitical tensions and stabilize commodity markets. Lower oil prices would be a relief for India, a major importer of crude oil.
However, Trump’s protectionist policies are expected to escalate trade tensions globally. His administration could impose higher tariffs to boost American manufacturing under the “America First” policy. For India, this could be a double-edged sword. While tighter U.S.-China trade policies might provide India with an opportunity to replace Chinese exports to the U.S., stricter immigration and visa policies could hit India’s IT sector.
A Trump victory could also see higher interest rates, as Trump is expected to push the Federal Reserve to align with his fiscal agenda. This could increase U.S. Treasury yields and strengthen the dollar, making imports from India more expensive. However, Trump’s corporate tax cuts and other business-friendly policies could spur growth in U.S. equities, which may also positively affect the Indian markets.
With markets set to react in the coming days, investors should remain alert and ready to adjust strategies as the U.S. election results shape the global and Indian economic landscape.
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