The results of the US election in 2024 will have a big impact on the world economy as well as America. The political climate of the United States, one of the biggest democracies and financial superpowers in the world, can have an impact on global markets.
The Indian stock market, in particular, is ready to react to the election results since it is constantly attentive to change in the world. This article highlights the possible risks and opportunities for investors as it examines how the US election in 2024 may affect the Indian stock market sentiments.
Table of Contents
Key Factors Impacting the Indian Stock Market
Trade Policies and Bilateral Relations
Trade Policies
- A number of industries may be significantly impacted by the introduction or removal of tariffs on goods traded between the US and India. Reduced tariffs, for example, can increase the export of Indian goods, which will benefit sectors like IT services, textiles, and medicines.
- Protectionism and Trade Wars Global supply networks may be affected by trade wars and protectionism policies. Because businesses that rely on foreign commerce may find it difficult to maintain profitability, such disruptions can cause uncertainty in the stock market.
- Standards and Market Access Agreements that improve Indian products’ access to US markets and vice versa can help their respective industries thrive. It is vitally important to adhere to international norms and laws.
Bilateral Relations
- Strategic partnerships India and the United States have been forming strategic partnerships in a variety of fields, including defense, technology, and energy. The stock market would gain from these collaborations’ ability to develop new industries and enhance those that already exist.
- Investment Flows Strong bilateral ties promote both foreign portfolio investment (FPI) and foreign direct investment (FDI). US-based investors are more inclined to buy Indian stocks if the bilateral relationship is stable and promising.
- Policy Alignments Coordinated growth strategies can arise from policy alignments, especially in areas like technology transfer, healthcare, and climate change. These rules might create new markets for industries in both countries, which would improve stock market performance.
Dollar Strength and Rupee Movement
The US dollar’s strength has a significant impact on emerging markets like India and the global economy. Interest rates, geopolitical stability, and US economic success are some of the variables that affect the dollar’s strength.
Strength of the Dollar:
- Capital Flows: The rupee may decline as a result of capital leaving India due to a strong dollar.
- Trade Balance: India’s trade imbalance may increase as a result of higher import prices brought on by a strong dollar.
- Inflation: When the rupee depreciates, import prices rise, which causes inflation in India.
Impact on the Stock Market:
- Foreign Portfolio Investment (FPI) Flows: Foreign investments in Indian stocks may decline if the dollar appreciates.
- Corporate Earnings: As their revenues increase in rupees, export-oriented businesses profit from a rising dollar.
- Investor Sentiment: Market confidence and investment strategies are impacted by exchange rate volatility.
Interest Rates and Global Liquidity
Interest rates:
- The stock market may rise as a result of increased investment and spending spurred by lower domestic interest rates.
- Increased international interest rates may deter foreign capital from investing in India, which would affect stock prices and liquidity.
Global Liquidity:
- More capital inflows into developing nations like India as a result of increased global liquidity fuel market expansion.
- Market volatility might result from capital withdrawals brought on by tightened global liquidity.
- The monetary policies of central banks have a big impact on global liquidity, which in turn affects stock market performance.
Stock Market Dynamics:
- While higher rates and less liquidity might result in bearish trends, lower rates and plenty of liquidity produce bullish market circumstances.
- Lower borrowing costs appreciate corporate profits, but rising interest charges with higher rates have an impact.
- Interest rate and liquidity changes have distinct effects on various industries.
Market Sentiments and Global Uncertainty
Market Behavior:
- Strong economic statistics and advantageous policies enhance positive attitude, which in turn stimulates investments and raises stock prices.
- Poor economic data and political unrest are frequently the catalysts for negative sentiment, which results in sell-offs and declining stock prices.
Global Uncertainty:
- Geopolitical Tensions: Market volatility can result from disputes and tense relationships.
- Economic Crises: Investor confidence may decline and capital may leave India as a result of global downturns.
Impact on Stock Market
- Stock investments are impacted by investor behavior shifting toward safer assets during uncertain times.
- Increased volatility lowers liquidity and stock prices by making it difficult to predict the market.
- Long-term uncertainty affects business profitability and economic growth.
Donald Trump's victory in the US can lead to better stock market conditions
- Pro-business policies: The decentralized nature and tax cuts can increase investor confidence and corporate profits.
- Market Optimism: In the past, Trump’s proposals have produced favorable market reactions.
- Fiscal Support: Tax breaks and higher government expenditure may help the economy.
- Trade Policies: Some domestic industries may profit from trade practices that are protective.
How History Repeats in Stock Markets
- Market Cycles: Affected by the state of the economy and investor sentiment, stock markets experience cycles of expansion (bull markets) and decline (bear markets).
- Investor Behavior: Booms and busts are caused by patterns of greed and fear. While panic results in sell-offs, optimism generates prices.
- Economic Indicators: Market developments are influenced by variables such as inflation and interest rates. These indicators’ extremes frequently indicate changes in the market.
- Historical Events: Markets have historically been impacted by financial crises and geopolitical conflicts, such as the housing crisis and the dot-com boom.
- Technological Revolutions: Developments such as artificial intelligence (AI) and the internet cause market shifts and growth cycles.
Learning from the Past
To make wise choices, analysts and investors frequently research past market sentiments or trends. They may more accurately predict future trends and steer clear of potential hazards by knowing how particular actions and events have affected markets in the past. Even if history doesn’t always repeat itself exactly, it frequently rhymes, offering important guidance for negotiating the intricate world of stock markets.