Uncertainty has crept into the markets as the claim and counterclaim of winning the US elections are made by both Republicans and Democrats. As a result, the bond market gained and equity turned volatile the world over in afternoon trade.
The incumbent president Donald Trump has claimed to win the 2020 US Presidential after Republicans swept a couple of key states and narrowed the gap with Democrats. President Trump has threatened to move Supreme Court if he is not declared the next president, latest reports said.
These developments have put US stock markets into a high volatile zone. There is still uncertainty about the final outcome is declared officially. On the other hand, Democratic candidate for the US Presidential election Joe Biden has said his party will wait till the last vote is counted, for the final outcome. This may delay the result, not for days but for weeks.
This means markets the world over will witness higher bouts of volatility for more time to come than expected. In this scenario, we discuss in the following lines, what Indian markets and investors should expect from the most awaited election and its outcome.
One thing is very clear the current rally witnessed in the Indian markets as well as some of the other leading emerging markets is because of excess liquidity support provided by Foreign Portfolio Investors (FPIs). Majority of these investors are based in the US. FPIs are net buyers in the Indian equity to the tune of $6.3 billion. This is despite the fact that they were net sellers to the tune of $8.26 billion in March 2020 alone. This is one of the reasons why the US Presidential election outcome is important for our market. US investors are equally important for the rest of the world too.
The Trump administration has already declared a relief package in excess of $1 trillion and was working on yet another package. The US economy was slowing down in the wake of the COVID-19 pandemic and to give fillip, this relief package (printing of money) was announced. The possibility of Trump returning as president also supported the optimism of the second stimulus package becoming a reality. Trump is also considered to be pro-business as his administration has cut corporate tax, which has helped US Inc to post handsome profits when the world economy is passing through rough weather. His ‘America First’ policy has been popular among US citizens.
Joe Biden, the Democratic candidate for the post of US President is known for his views to raise corporate tax and welfare economics. His views on monetary and economic policy are not considered favourable to the market.
In India, market participants are of the view that whatever policies are being pursued by the Trump administration with respect to the trade war with China or his policies on the geo-political front, his policies related to the US economy and for the rest of the world have benefitted the stock market of the US as well as India.
However, some experienced market observers feel that whoever comes to power in the US, India has strategic importance for them in terms of investment and as a market. As far as investment is concerned be it a direct investment (long term, FDI) or short term in the form of portfolio investment, India is very important for the future US administration, headed either by Republic or a Democrat President.
Following the trade war with China, US companies have begun working on their Business Continuity Plan (BCP) and have begun to shift their manufacturing facilities gradually from China to other South and South-East Asian countries including India. India will be equally important for US investors from the portfolio investment point of view as it is going to remain one of the attractive emerging markets for their investment.
So, whether it is Trump and Biden, the Indian Elephant (Large Domestic Market) will move at its own pace with minor hiccups here and there.
