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Why does the US elections impact the Indian stock market?

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US elections are of importance to the entire world, not just India, due to the role it plays in the global economy and being the apex super power in the world. The economic reforms that the new president might bring in will impact the global economies, some more than the other. For India as well, the US is an important destination for bilateral trade which means import and exports to and from both countries. With just a month to go for the US elections, the Indian stock markets are already weighing its impact. On the other hand, US elections are getting dramatic with the heated debates of elections and accusations.

It may be difficult to know who will win the elections but the guesses keep reflecting in the market. As it is always said “the market discounts everything”, it means that the market starts showing the results much before the actual result.

We can expect the markets to show an overhang of US elections until the final verdict. Market stays in a confused state till the event gets over. Hence the economic stance of each candidate is watched quite closely as it impacts our markets.

So why does the US election impact India?

It is about relations between countries that get affected by change in power. The new policies or stance that the new president brings impacts all the world economies. All depends on what the candidates put on the table for the economy and for the people.
Just to set the context to the extent of bilateral trade, let’s look at some numbers:

The US is India’s top trading partner.
According to data of the commerce ministry for FY19-20:
– The bilateral trade between the US and India stood at $88.9 bn (approx Rs 6.3 Lk cr)
– India has always had a trade surplus with the US where the value of exports exceeded the value of imports.
– The trade surplus has widened to $17.3 bn (approx Rs. 1.2 Lk cr) in FY20. Trade surplus was at its peak at $21 bn (approx Rs. 1.4 Lk cr) in FY18.

Of the total $313 bn (over Rs. 22 Lk cr) exports, US accounted for close to $53 bn (Rs. 3.75 Lk cr)
– Exports of gems & jewellery was highest at $9 bn (over Rs. 65,000 cr)
– Exports of pharmaceutical products were close to $6.3 bn (close to Rs. 46,000 cr)
– Exports of machinery and mechanical appliances was close to $4.5 bn (close to Rs. 33,000 cr)

Of the total $474 bn (Rs. 33.6 Lk cr) imports, India’s bill from the US was close to $36 bn (Rs. 2.5 Lk cr)
– Import of petroleum products was highest at $7 bn. (over Rs. 50,000 cr)
– Import of pearls and precious stones was close to $4 bn. ( close to Rs. 30,000 cr)

Source: Department of commerce site – FY19-20

How will it work for Indian stock market?

Some analysts say that India will be a winner irrespective of the outcome. Be it a Joe Biden, the democrat nomination for president, a divided Congress or a status quo where Donal Trump gets a second term as president. Trump’s win can rejoice the Indian stock market for the short term whereas Bidens win will be positive for the long term. There may be uncertainty for sometime under the new regime which can impact global financial markets but in the long term, market analysts are not expecting major changes in ties between both countries.
Market analysts expect that if Trump wins markets may gain some 2-3% in the short term and if Biden wins markets may see some negative reaction but expected to turn positive in the long run.

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