Indian Markets & US Elections – All You Need To Know

The bell has rung and the contest has kicked off! Yes, we are talking about the Biden-Trump fight for their seat in their White House! In their nail-biting run, the 2 administrations enjoy a narrow gap of 238 to 213 electoral votes (270 to seal the deal), with Biden in the lead.

As the winner takes lead to make the world’s biggest economy covid-proof, there is a lot at stake for the world’s fastest growing emerging economy too.

From being one of the biggest beneficiaries of the visa system, to the rekindled faith of India-US relations, the elections results act as the intermediary between India of today and the India of tomorrow.

And wherever money talks, there market walks. So why stay anticipated when you can stay informed. Here’s all you need to know!

Why the US Elections Matter:

The United States is a “true-to-label” superpower boasting the world’s biggest things in the broadest contexts. From Military to Markets, the budgets & market-caps respectively wear amounts higher than some country’s GDP!

➢ Military Presence In more than 80 countries
➢ US accounts for 55% of world market-cap

It’s reaches spans across continents as it is enjoying direct/indirect business relationship with the developed & developing world. This makes it the Simon of countries, for what it says/does it’s what others say/do. As examples:

➢ US prints the world’s reserve currency
➢ US Fed sets the trend for global interest rates and liquidity
➢ Its Trade impacts / Tax structures spill impact worldwide

India’s trade relation with US?

USA is our largest export destination. In 2019-20 of $ 313 bn of aggregate exports, USA accounted for $ 53 bn & in terms of imports, India’s bill from USA was $ 35.7 bn in 2019-20 in a total of $ 474.2 bn

India has always had a trade surplus with USA in last 20 years irrespective of the parties which were in rule at that time. And hence we don’t see a much impact on export and import of the commodities

So, as we realize the potency of the POTUS, it becomes almost necessary to highlight the impacts of what can we expect depending on the who’s who and what’s what.

If Biden wins the election

With ~40-year experience in politics, Biden (Ex-VP of US) wears grade-A political knowhow on his sleeve. Standing in for the Democrat party, Biden’s victory can have the following impact on India:

➢ A newer and heavier infra spending budget can help amplify current positive tones seen in Indian markets, on the ground increase export demand.
➢ Pro-friendly stance on Visa will be beneficial for the Indian IT sectors amongst others, as they source a heavy % of monies from outside.
➢ Adoption of more globalized policy can help India promote its “AatmaNirbhar” stance, as its policy of ‘making local – selling global” can find a louder voice
➢ Pressing on sustainability in environment, healthcare and innovation, can help in easing of regulatory norms for Indian companies while making overall business relationship more beneficial.
➢ The higher corporate taxes on US companies can boost short-term sentiments for Indian companies as volume of business can take a spike before normalizing in the long-run

With Biden come a lot of promises. But what’s on the hand is unequivocally equal.

If Trump wins the election

The Indian markets witnessed their all-time highs (several times) when businessman politician Trump was helming the country in the last 4 years. But with Covid, has trump got a new face – That of a strict parent? If so, is India getting an early Christmas present or plate with empty cookies? Let’s have a quick look:

➢ Trumps hardened stance on doing business with select countries coupled with China-restrictive policies can  expedite India’s run in becoming the “Manufacturer of The World”

However, Trump’s attempts to localize global institutions can cause impediments in the long-run

➢ Lower corporate taxes can welcome higher per capita spending as individuals and institutions become cash-rich
➢ Trump Visa policy can be detrimental to India, with dramatic effects on the micro-&-macro positioning of the country

From Howdy Modi to Namaste Trump, Indian markets can see impetus in the short-run but welcome uncertainty in the long-run. And after 2020, volatility or unknows is something markets are not well-equipped to deal with

Indecisiveness could cost

Markets are not to stay indifferent to indecisions. After a flurry of unprecedented events and possibly more in queue, anything adding to the haze could dent investor sentiment. As long as the seat is either red or blue, the markets will grow in a certain fashion or other but a seat without colour won’t go well with markets.

Investor Takeaways:

As markets and its participants await the decision, we question if the decision holds enough weight from an investor’s perspective. And our findings amuse us. Everyone agrees on the muting of election impact in the long-run, but it is the short-run which gives everyone the hiccups.

Well, we have a charted an easy-to-read data for near-term movements of the markets before and after an election to soothe your tensions. The table is as below:

As can be seen, the markets view this periodical 4-year event as another speed-breaker to tide over.

But does the market behavior of treating the election as leap-year event hold true in the long run? Well, when charting the numbers, the answer is an evident Yes:

5 Elections are covered in the graph above 3 of which have been won by Republicans and 2 by Democrats. Try finding and quantifying the consequence of any of them.

The very fact that Waldo is easier to look for than derived results tells us of the Market’s ability to view myopic events in a hypermetropic style.
Oh and if you were to quantify the event statistics, just know, no matter the observations, Indian markets realized a CAGR of ~12.5%!

So, don’t let the elections “decide” your portfolio positioning, but instead “vote” to stay invested!