The US presidential election holds significant sway over global markets, including India's bustling stock exchanges. As investors worldwide watch with anticipation, the impact on Sensex, India's benchmark stock index, becomes a focal point of interest.
Historically, election outcomes in the United States have sent ripples through international economies. This article gives an insight into what Indian markets should expect from the US Presidential election, highlighting its outcomes as well as what it means for investors.
Historical Impact of US Elections on Indian Stock Market
The Indian stock market has shown varied reactions to the US Presidential Elections, reflecting broader global market sentiments influenced by US political changes.
- 2008 US Election (Obama's Victory): The 2008 election coincided with the global financial crisis, making it challenging to isolate the direct impact of the election results from the broader economic turmoil, with Sensex falling around 9.92%. However, Indian markets eventually mirrored the global recovery trend, influenced by positive sentiment towards his economic stimulus policies.
- 2012 US Election (Obama's Re-election): This was viewed positively by the Indian markets. The BSE Sensex saw an uptick by around 0.58%, consistent with global markets, reflecting continuity in US policies which were deemed favorable for global trade and economics.
- 2016 US Election (Trump's Victory): The immediate reaction to Donald Trump’s victory was a dip in the Indian markets, with the Sensex falling by around 1.75% the day after the election. This reaction was part of a global trend due to uncertainties about Trump's trade and foreign policies. However, the markets stabilized and showed recovery in the following month.
- 2020 US Election (Biden's Victory): This was perceived favorably, leading to a 2% rise in the Sensex over the week following the election announcement. The markets responded positively to the expected stability in trade policies and international relations.
The historical data suggests that while US Presidential Elections do cause immediate fluctuations in the Indian stock market. That said, the Indian market's resilience shows its capability to adapt to global political changes while being guided significantly by its own economic fundamentals.
Why Does the US Election Affect the Indian Stock Market?
Here are some key factors on why the US elections have a significant impact on the Indian stock market:
1. Economic Policies
The new government’s policies determine agreements, tariffs, and outsourcing regulations which affect sectors like pharmaceuticals and IT directly.
These policies influence how much Indian companies undertake business with US companies, which, in turn, affects how investors view Indian companies.
2. Geopolitical Stability
The stability of US politics impacts global market confidence. Changes or uncertainties after a US election can cause fluctuations in commodity prices and overall market stability.
These shifts affect investor decisions worldwide, including those investing in India's stock market like the Sensex.
For example, the tussle between the US and China over the trade agreement led to a lasting impact on the global markets.
3. Global Investor Sentiment
Elections in the United States can significantly impact investors' perception of global market risk, including in India.
If investors believe that the new U.S. government will implement pro-India policies, they may increase their investments in Indian shares. But if there's uncertainty or worry, they might pull money out, causing prices to fall.
4. Sectoral Impact
Different sectors in India, such as technology and pharmaceuticals, are uniquely impacted by US election outcomes.
For instance, technology policies proposed by US candidates can influence Indian IT firms' revenues and growth prospects. Similarly, changes in US healthcare policies affect pharmaceutical companies in India.
Understanding these sector-specific impacts is crucial for investors assessing how shifts in US policies could potentially affect the Nifty share price and sectoral performances on the Indian stock market.
5. Currency Movement
Changes in the US election can cause shifts in global currency markets. If the US dollar strengthens against the Indian rupee, imports may become more expensive for Indian companies for raw materials, affecting companies' profits.
On the other hand, a weaker dollar could make the import cheaper for Indian companies, potentially boosting their bottom line.
6. Trade Relations and Regulations
New trade policies or tariffs imposed by the new US government can impact sectors like pharmaceuticals and IT services in India.
Changes in intellectual property rights protection can also influence how Indian companies do business with the US.
Conclusion
The historical impact of US Presidential Elections on the Indian stock market underscores the intricate link between global political events and local economic outcomes.
Over the years, reactions have ranged from significant drops to gradual recoveries, reflecting the nuances of each electoral outcome and its subsequent policies. To track market indices such as Nifty 50 and BSE Sensex, use the online trading platform like Dhan.
Disclaimer: No Business Standard Journalist was involved in creation of this content