The upcoming U.S. presidential election has people around the world, including in India, watching closely. Analysts, investors, policymakers, and business leaders are all eager to see the outcome because it has the potential to impact global financial markets. In India, the stock market has already shown signs of reacting to the uncertainty surrounding the U.S. election.
This year, Democrat Kamala Harris and Republican Donald Trump are the main contenders. With both candidates presenting contrasting policy plans, investors are buying safer assets like the U.S. dollar and gold, leading to volatility in markets worldwide, including in India. But why are elections in another country affecting India’s stock market? Let’s dive deeper.
Why U.S. Elections Matter to Global and Indian Markets
The U.S. president has significant power to shape policies that affect not just the American economy but the global economy as well. The winning candidate will set the agenda on important policies like taxes, trade tariffs, subsidies, and fiscal spending. These policies can influence everything from the cost of goods to the flow of international trade.
Since the U.S. is a major trading partner and investor in many countries, any change in its policies can have a ripple effect globally. For example, if the U.S. changes its tax or trade policies, it could impact other countries that do business with America — including India.
This uncertainty before the election creates short-term market fluctuations, as investors try to predict how the new policies could affect their investments. Once the results are clear, markets generally stabilize as investors get a better sense of the new administration’s priorities.
How the U.S. Elections Are Linked to India’s Economy
The U.S. is India’s largest export market, meaning a significant portion of what India produces and sells abroad goes to the U.S. According to recent data, around 17.41% of India’s total exports head to the U.S. This includes IT services, generic medicines, and manufactured goods like electronics.
Because the U.S. is such an important trading partner, any big event there — like a presidential election — naturally attracts attention in India. Policies set by the U.S. government could impact Indian industries that rely on American consumers and businesses.
In October, foreign investors withdrew a large amount of money from the Indian market due to uncertainty around the U.S. elections and other global events. This caused the Indian stock market to dip as foreign investors sold their holdings in Indian companies.
How Different U.S. Policies Might Impact Indian Sectors
The two major U.S. political parties — the Democrats and the Republicans — have different views on economic policies, and each could affect India in specific ways.
- Democrats (Kamala Harris): Known for policies aimed at redistributing wealth, such as higher taxes on corporations and more government spending on healthcare and clean energy. They generally favor relaxing immigration rules.
- Republicans (Donald Trump): Known for policies favoring lower taxes, especially for businesses, high tariffs on imports to protect American jobs, and stricter immigration policies.
Because the two parties have different economic agendas, their policies will impact certain Indian sectors differently.
Key Indian Sectors That Could Be Affected
1. IT Sector
India’s IT sector is heavily dependent on the U.S. market. Companies like TCS, Infosys, Wipro, HCL Technologies, and Tech Mahindra earn more than half of their revenue from the U.S., especially from the banking and finance industry.
- If Republicans Win: They may keep U.S. interest rates high and tighten immigration policies. This could raise costs for Indian IT firms since they might need to hire more American workers, who are generally more expensive than Indian workers. However, lower corporate taxes could increase business spending on technology, potentially benefiting these IT firms. Additionally, a Republican stance against China could lead U.S. companies to shift their outsourcing to countries like India.
- If Democrats Win: The Democrats may lower interest rates and maintain or relax immigration rules. Lower interest rates could benefit American financial companies (a major client base for Indian IT firms), possibly increasing demand for IT services. However, higher corporate taxes could leave U.S. businesses with less cash for discretionary spending on technology.
2. Oil Sector
India imports a large portion of its oil, so any changes in U.S. energy policy can affect India’s oil import costs.
- If Republicans Win: They support the U.S. oil industry, including shale production, which could keep global oil prices lower. Lower oil prices would be beneficial for India, reducing the cost of imports. This would help Indian oil companies like HPCL, BPCL, IOC, and gas distributors like IGL, MGL, and Gujarat Gas.
- If Democrats Win: They focus on clean energy and may implement policies that reduce oil production in the U.S. This could push global oil prices up, increasing India’s import bill, which would negatively impact Indian oil companies and consumers.
3. Manufacturing and Exports: The China+1 Strategy
In recent years, India has been seen as an alternative to China for manufacturing. The “China+1” strategy involves companies diversifying their manufacturing bases beyond China, and India has been a popular alternative.
- If Republicans Win: A Republican administration might impose higher tariffs on Chinese goods, which could benefit Indian exporters. Indian manufacturers in sectors like metals, chemicals, textiles, and auto components may see increased demand as American companies look to buy from countries other than China.
- If Democrats Win: Democrats are generally more diplomatic with China, so their policies might not be as aggressive. This could mean fewer opportunities for Indian manufacturers who are benefiting from the shift away from China.
4. Banking and Interest Rates
The U.S. interest rate, set by the Federal Reserve, influences global interest rates, including in India.
- If Democrats Win: The Democrats may continue lowering interest rates. This could prompt the Reserve Bank of India (RBI) to also lower rates, benefiting Indian banks and non-banking financial companies (NBFCs) by reducing their cost of funding and encouraging more borrowing.
- If Republicans Win: Higher interest rates could continue under a Republican government. This could make loans more expensive in India as well, which could slow down sectors like real estate and increase pressure on Indian banks and NBFCs dealing with higher delinquencies.
What This Means for the Stock Market
In the short term, the uncertainty around the U.S. election outcome will likely keep markets volatile. However, once the winner is decided and policies become clear, markets should stabilize. While the U.S. president has a significant influence, long-term market growth in India is driven more by local company strategies, economic policies, and global economic conditions rather than just the U.S. presidency.
- If Democrats Win: The market impact might be minimal as the Democrats are the current ruling party, and most policies would remain similar. Some sectors like clean energy may benefit, while others may see little change.
- If Republicans Win: We may see more pronounced effects on sectors like IT, oil, and manufacturing due to their policies.
The Takeaway
While the U.S. election can cause short-term market fluctuations, the long-term growth of the Indian stock market will be determined by how Indian companies adapt to these changing global dynamics. For now, investors should brace for some ups and downs but remember that stock markets often bounce back once the uncertainty clears. The real drivers of India’s growth are its own economic policies, corporate strategies, and global market conditions.