Investors are likely to cheer the outcome of the US elections with Democrat Joe Biden winning the US Presidency, putting an end to months of uncertainty over who would run the White House. Analysts expect the US dollar to weaken, oil prices to moderate, and interest rates to remain low under the Biden administration, providing a tailwind for domestic equities. Many are optimistic that President-elect Biden’s experience in handling international affairs under the Obama administration may help repair relations with China and boost global trade.
On Friday, the benchmark Sensex ended at 41,893, just 52 points shy of a new all-time high. The Nifty50 index rose to a near-10-month high of 12,263, less than 90 points short of surpassing the previous record made in January. Both the benchmark indices had rallied over 5 per cent last week. Some say most of the positives around the US election results have got factored into last week’s rally and stocks could solidify the gains.
“Last week’s momentum will continue. Global markets will like the fact that Biden is going to get in. The global growth is going to pick up. He won’t be having problems with China. Biden is a big votary of clean energy. The ESG theme (environmental, social, and corporate governance) will become more prevalent going forward in India,” said Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies.
Experts say the markets could see some turbulence if President Donald Trump refuses to concede defeat. Also, a split Congress could pose Biden a challenge when it comes to pushing ahead with the reforms agenda.
“Biden has won quite convincingly. But there will be some newsflow in terms of Trump challenging the order. Also, the Senate is still Republican. It is not easy for Biden to form a Cabinet and administer. There will be uncertainty for the markets because of a lack of majority in the Senate,” said U R Bhat, director, Dalton Capital (India).
Last week’s stellar rally was partly attributed to the potential gridlock in the Congress. Democrats in the White House and Republicans holding the Senate, many said, was the best-case scenario for equities as it would prevent corporate tax hikes and massive borrowings.
“There are two factors influencing the markets. One is the easy monetary stance by the US Federal Reserve. This will not change even if Biden comes to power. Second is the size of the stimulus package, which wasn’t resolved before the elections. Moreover, the big focus will be on the vaccine. Since the politics is behind us, the focus is going to be on the vaccine,” said Jyotivardhan Jaipuria, founder, Valentis Advisors.
Many believe a Covid-19 vaccine will be the next big trigger for the market.
“Now the focus will turn to Covid-19 and if the vaccine is coming through. It will give a fillip to global markets,” added Holland.
Market experts said besides Biden’s victory, the domestic market will be boosted by strong rally in banking stocks. Last week, the Bank Nifty index jumped more than 12 per cent and analysts say the rally could sustain as there is more room for valuation expansion. Also, strong inflows from overseas investors as seen last week could boost equities.
However, one sector that could be negatively impacted is oil and gas. “Biden will be pro-clean energy. So, the oil and gas sector could see some headwinds,” said Bhat.
US-dependent sectors such as information technology (IT) and pharmaceuticals could benefit if Biden takes a liberal approach.
“IT may do well because Biden will have a more relaxed approach to immigration. And clean energy could be another sector which could do well because Biden is big advocate of clean energy,” said Jaipuria.