Indian stock markets are faltering amid rising uncertainty surrounding the US elections this week. What should investors do?

US presidential election have always been a global spectacle, with both geopolitical and economic consequences for almost the entire world. The main uncertainty, as in any election, is who will win. But after the last elections, when the president Donald Trump refused to concede in 2020, the question is also whether the candidates will accept the verdict. Moreover, an additional layer of uncertainty is the continued uncertainty about the specific policies that the Republican and Democratic candidates will take during the first few weeks.

The result of all this uncertainty, along with growing geopolitical conflicts and economic turmoil, is stock market this is out of bounds. As investors flock to safer asset classes such as gold and bonds, the Indian stock market has been in a downward spiral for more than a month, down nearly 10% from its peak in late September.

Sensex, Nifty fall on Monday

On Monday, November 4, Indian stock markets continued to experience increased volatility. Sensex and Nifty Each index was down nearly 2% by midday, reflecting investor caution and in line with the market’s recent decline. Investors’ wealth fell by Rs 7.37 lakh crore on Monday morning as stock markets plummeted by over 1,000 points.

“The end of October was a tough month for the bulls, erasing gains accumulated over the last two months, with Nifty shares falling over 6% in one of the sharpest monthly declines in recent times, affecting the monthly chart structure… break below this week’s support range of 24100-24000 could trigger further weakness, possibly pushing prices towards the 200 SMA around 23500,” says Samit Chavan, head of technical and derivatives research at Angel One.

The turbulence is affecting major sectors of the economy, with significant declines in IT, pharmaceuticals and financials stocks. Stocks of prominent names like Reliance Industries, Hero Motorcorp, Coal India, ONGC and Tata Motors are witnessing significant declines with all these stocks falling by over 3%.

Additionally, the Indian rupee weakened to a record low and government bond yields rose, indicating investors are bracing for a prolonged period of uncertainty. Increased volatility, along with US election dynamics, is creating both caution and opportunity for Indian traders. Given strong demand for safer assets, this period could benefit those positioned correctly, but for the broader market, the swings highlight the risks associated with global dependencies and the complex economic ties of the US and India.

What should retail investors do?

While the Sensex fell 7% from recent highs, the rupee hit an all-time low and government bond yields rose 14 basis points. Expert advice also varies on what investors should do at this crucial time.

Given the growing uncertainty, retail investors should wait before committing more capital, focusing on high-quality stocks and avoiding frothy small- and mid-cap stocks that may carry higher risks in the current environment, says market expert Vijay Chopra.

“Retail investors may want to consider buying shares of good companies that are reasonably priced. This market correction is a good buying opportunity as India’s growth path is intact,” says Sriram Subramanian, founder and managing director, InGovern Research Services.

Overall, Indian investors and market analysts are advising a cautious approach. While the US election creates a unique climate of uncertainty, following basic investment principles such as diversification and long-term planning can provide a buffer against the volatility expected in the coming weeks. Indian investors are increasingly aware that while the US elections are a spectacle to watch, broader economic indicators and global trends will ultimately shape markets more than any single election outcome.

Expectations for the 2024 US presidential election

As the US gears up for the 2024 presidential elections, Indian markets are not immune to volatility. With the Vice President Kamala Harris and former President Donald Trump in a tight race, the stakes are high even for Indian retail investors. The policies of the next US administration may affect global markets, including Indian markets.

Experts say three major issues in the US elections – tariffs, immigration and taxation – could directly impact the Indian economy and investor sentiment, according to an analysis by Economic times.

The Trump administration has historically used tariffs to limit China’s manufacturing dominance, and if it wins, maintaining or even expanding those tariffs could lead to higher inflation. The ripple effect could lead to higher import and export costs in emerging markets such as India, affecting key sectors that trade with the US such as IT, industrials and manufacturing.

On immigration, a potential Trump victory could lead to renewed controls on H-1B visas, which are critical to India’s tech sector as nearly 75% of these visas are issued to Indian workers. On the other hand, the Harris administration will likely take a more lenient approach, but the specifics will depend on Congress. On the tax front, Trump’s policies are often seen as pro-business, but Harris has proposed tax reforms aimed at raising corporate taxes that could cut S&P 500 earnings by as much as 5.5%.

The central role of the US dollar and investment in the global economy means that any volatility in US markets often has a cascading effect on emerging markets. As it stands, uncertainty has already driven up the CBOE Volatility Index (VIX), commonly referred to as Wall Street’s “fear gauge,” reflecting growing anxiety among global investors. For Indian markets, this may mean a series of short-term swings, but a sustainable, diversified approach is still important. History shows that while elections cause immediate market fluctuations, the long-term effects are usually modest.

(With participation of agencies)

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