US Prez Election weighing on Indian Stock Market

Tomorrow is D-day, when people in the United States will

vote for the 45th President of their country. History will be
created soon after one of the most controversial US
Presidential elections. While Hillary Clinton could be the first
woman US President, Donald Trump could be the first
President without any preceding political or military
experience. Having delayed in the race for a significant period,
Trump has been cutting into Clintons precedence after the
reopening of investigations by the FBI into Clintons emails.
Financial market analysts note that a victory for Donald
Trump will pilot in a period of ambiguity in economic, social
and foreign policies. Equity and currency markets have turned
chaotic as the gap between the two candidates narrowed in opinion polls.
A further decline in stock prices is probable if Trump wins while a mild rally is expected if
Hillary Clinton does.

Glance at the Stocks:

Investor worries over the US presidential election outcome sent Indian shares to fourmonth lows ahead of Tuesdays vote, and the increased the risk to policies such as global
trade and shifts in political stance should keep global markets on the edge in the coming
week. The unrest, however, would be a chance to grab bargains in an expanding economy.
The top-30 S&P BSE Sensex and the broader 50-share Nifty50, both closely tracked by
big overseas and domestic investors, slipped 2.4 per cent each in their biggest weekly fall
in more than a month as foreign funds casted off shares worth more than $100 million.
Today, a day before the election, Nifty share price opened at the positive note against its
last close price. Opinion polls signifying that maverick Republican candidate Donald

Trump is closing the gap on Democratic nominee Hillary Clinton are likely to cause more
restlessness among money managers.
There is a belief that export-driven sectors such as outsourcing and pharmaceuticals, that
get considerable revenue from the US, could face heavy season if Washington tightens the
flight of jobs and restrict imports. While Trumps expression on economic issues has been
more extreme, Clinton has not been far behind either.
Investors should look at shares of companies that are driven by domestic demand, which is
picking up and would continue as economic growth accelerates. In other words, a
correction in share prices would be a chance to accumulate.

A Peek in the History:

An analysis of the change in Sensex and S&P 500 values, post one week the date of the
Presidential election, shows a very high positive correlation of 0.97 between the two
indices. This means that Indian equities will drop or swim with their US counterparts in
the coming week.

However, the impact of the elections does not last long and the structural drift in the
market tends to take over in Indian stock markets. In November 2012, the Sensex slipped 1
per cent in the week following the election. But it recovered to gain 3.56 per cent in the
following month, aided by foreign investor buying. Similarly after the 1996 election,
Indian markets fell sharply in the following month, as the structural trend was down since
1994.

FDIs and FIIs:

Foreign investment flows into India also do not appear to be affected by these elections.
Barring 2008, FII flows into the Indian equity market have been upbeat in the months in
which US Presidents were elected. FDIs have also seen a rise.
For instance, on Friday, Suzuki Motor Corp would put in about $970 million in a second
vehicle production line at its new plant in Gujarat. India is the largest market for the
Japanese car maker and its unit, Maruti, is already spending $2.8 billion for Gujarat to set
up six production lines competent of producing 250,000 vehicles each.
Also, APG Asset Management, a Dutch pension fund, and Rothschild family-backed
investment firm The Xander Group are jointly investing $450 million in retail assets in
India, where consumer spending is likely to top $3.6 trillion by 2020.
Meanwhile, the two firms declared on Friday that they have bought three shopping centers,
totaling about 3.5 million square feet, for $300 million, in Bengaluru and Chennai in
southern India, and Surat in the west. The remaining $150 million will be used to buy, or
build new retail real estate assets.

Currency impact:
The dollars situation as the safe haven will stand it in good stead if there is a market
collapse following the election result. In 2012, when US equities declined, the dollar
rallied 0.50 per cent in the week after the polls. The rupee fell 0.55 per cent in that period,
impaired by a stronger dollar as well as the increased global risk aversion.

Similarly, in 2008, the S&P 500 fell 10.6 per cent in the week after the poll, the dollar
rallied 2.8 per cent and the rupee declined 0.84 per cent. So, the rupee could be adversely
impacted, at least in the short term, if Trump wins.

Disclaimer
The investment advice or guidance provided by way of recommendations, reports or other ways are solely the personal
views of the research team. Users are advised to use the data for the purpose of information and rely on their own
judgment while making investment decision.
Dynamic Equities Pvt. Ltd - SEBI Investment Advisory Reg. No.: INA300002022

Disclosure
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Article Written by
Tanaya Nath