New Delhi, Nov 4 (PTI) The results of the US midterm elections are likely to influence Indian markets primarily through changes in global financial conditions, trade policy expectations and geopolitical developments, analysts said.
Investors' focus will shift to the US administration's next course of action on West Asia, as any further escalation or diplomatic progress could significantly influence crude oil prices and global market sentiment in the near term, according to an expert.
In a stinging rebuke to President Donald Trump, American voters on Tuesday gave the opposition Democratic Party control of the US Congress and flipped key gubernatorial posts in widely watched elections that will have consequences far beyond America.
Trump’s Republican Party faced stunning defeats in its strongholds such as Texas, Georgia and Iowa, where it lost the governors’ posts to the Democrats. The grand old party also faced a drubbing in Senate races in Texas, Maine, South Carolina, North Carolina, Kansas, Iowa – where Trump campaigned with a simple message urging voters to pretend that he was on the ballot.
The widespread losses were attributed to anger against Trump’s policies, including the war on Iran, which have led to increased cost of living and high diesel prices.
"The US midterm election outcome, with Democrats securing control of both the House of Representatives and the Senate, is likely to influence Indian markets primarily through changes in global financial conditions, trade policy expectations and geopolitical developments. The result has increased the possibility of legislative gridlock in Washington, potentially limiting the implementation of President Donald Trump's domestic policy agenda and increasing scrutiny of existing tariff and immigration policies.
“The immediate market reaction has been supportive for emerging markets, with the US dollar and Treasury yields declining, offering some relief to the Indian rupee and improving foreign investor sentiment," Gaurav Garg, Head - Research, Lemonn, said.
However, the impact on Indian equities will depend more on how these developments translate into actual policy changes rather than the election outcome alone, he said.
“From a sectoral perspective, IT companies will remain sensitive to changes in US technology spending, H-1B visa regulations and corporate outsourcing budgets, while any improvement in US business confidence could support demand for Indian software services. Pharmaceuticals could benefit if trade and regulatory uncertainties ease, although US pricing and regulatory policies remain important risks,” Garg added.
Stock markets rallied for the fifth straight day on Wednesday amid foreign fund inflows and easing crude oil prices. The 30-share BSE Sensex rose 383.55 points, or 0.50 per cent, to settle at 77,301.40, its highest close in more than two months. The 50-share NSE Nifty was up 149.75 points, or 0.63 per cent, to end at 23,960.60.
Oil marketing companies, aviation, paints and chemicals may gain if geopolitical tensions moderate and crude oil prices further decline, resulting in reduction in input costs and India's import burden, he said.
Conversely, upstream oil and gas companies could face pressure from lower crude prices, Garg said, adding that financial stocks may also respond to movements in US Treasury yields and foreign portfolio flows.
"Overall, the election outcome is a potential short-term positive for Indian market sentiment, but sectoral performance will remain differentiated, with currency movements, crude oil prices, US trade policies and domestic corporate earnings determining the sustainability of the market reaction," he said.
In the last five trading sessions, the Sensex has jumped 4,055.37 points, or 5.53 per cent, and the Nifty surged 1,261.75 points, or 5.55 per cent.
"Post the US midterm elections, investor focus will shift to the US administration’s next course of action on West Asia, as any further escalation or diplomatic progress could significantly influence crude oil prices and global market sentiment in the near term," Siddhartha Khemka - Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd, said.
"On the global front, markets remained mixed as investors assessed the implications of the US midterm election outcome, particularly for AI-related investments, global trade and geopolitical developments," Ajit Mishra, SVP – research, Religare Broking, said.
V K Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd, said the Democrats’ win in both the House of Representatives and the Senate will significantly reduce the powers of the President to act as he wishes.
"A likely positive fallout is that the Trump Administration might expedite the US-India trade deal to show positive results in the face of this setback. Also, since the excessive price of diesel is believed to have contributed significantly to the Republican loss, the President might try to reach a deal with Iran through Qatar mediation. The consequent possible decline in crude prices will be beneficial for India. Brent has already declined from last week’s high of USD 118 to USD 102 now," Vijayakumar added.
IT stocks were the laggards on Wednesday's trade, with TCS, Infosys, HCL Tech and Tech Mahindra ending lower.
"The Nifty IT declined 1.5 per cent, tracking a broader sell-off in Asian technology stocks amid concerns over rising artificial intelligence spending and potential regulatory scrutiny following the US election outcome," Khemka said.
(This story has not been edited by THE WEEK and is auto-generated from PTI)