How 'real' will be the impact on the mkt post US election?

In an interview to CNBC-TV18, Arvind Sanger, Managing Partner of Geosphere Capital Management discussed the possiblities of the US Presidential election and how Obama's win might not really affect the market, whereas Romney's might do just for a week or so.

Below is an edited transcript of Arvind Sanger's interview on CNBC-TV18. Q: Looks like a dead heat in US. Why is the market getting jittery? Is a non Obama verdict not going to meet the kind of response that markets were speaking about earlier? A: The way the numbers are coming out right now even though the Electoral College is showing neck to neck, most of the early uncertain states seem to be breaking President Obama’s ways. So the market is certainly not reacting right now to any expectation of an upside. If they run upside maybe the market would be down even more. Now there is more concern that election is going to be decided very soon. We now have the fiscal cliff situation to deal with and maybe the cliff becomes greater into focus. But after a day, whatever the reaction maybe on the first day, I still think the markets are going to be okay assuming President Obama wins and there is no surprise. The markets are going to be okay unless the negotiations between President Obama and Congress gets very contentious and it looks like there is going to be no easy solution. But if they do manage to find some temporary fix till the new Congress comes in and reaches new solution, this market’s one day reaction may just stay a one day reaction. Then we will look where growth is in 2013 and go from there. If Obama wins then you have large continuity which will help the Senates still under Democratic control and house still under Republican control. So, I do not think there could be much change in Washington. Q: In case the situation pans out, President Obama does not get reelected then what would you advice equity participants to do from now on until the end of the year? A: I do not think the world changes much if Governor Romney becomes the new President. One of the things that might create some caution certainly in the emerging markets is whether somewhat less Fed friendly tone from Governor Romney.There would be some risk that the Fed might feel constrained in terms of how aggressively it follows its easy money policy. If that sets the tone for a slightly less reliable dovish Fed then that would be somewhat negative for capital flows into emerging markets and risky assets. That could be at the margin or modest negative for equity markets. Q: Everybody is watching the dollar closely here. What is your sense of how the dollar reacts just in the near term, 24-48 hours after the verdict depending on whether its Obama or Romney, the either of the two cases? A: If you have Obama I am not sure that the dollar makes much move. It may bounce around little but I am not sure it changes fundamentally. But if Governor Romney wins then it is possible that the dollar could strengthen somewhat. Again, this would be a tight mode to the expectation of maybe more hawkish or less dovish and that would be the main point. Q: How vulnerable is the Indian market if in case the election result doesn’t pan out as expected? If Romney comes into power, do you see an underperformance in the Indian markets towards the end of the year? A:The reaction will come in the rest of this week. I do not think beyond this week the reaction will be based on anything meaningful change even if Governor Romney wins. It does take some liquidity that is taken for granted today and puts a question mark on how long that liquidity and strong that liquidity will be. So, that would be a negative for the Indian market. But outside of that there is not going to be a complete turnoff of liquidity or the Fed is not going to suddenly change its tone because of what happens. So I would not over assume that the election result one way or the other is going to make a big difference. From a fiscal policy standpoint Governor Romney maybe less hawkish in terms of raising taxes, raising capital gains rate, raising dividend tax rates. Those are market friendly measures but on the easy money side there maybe less spilling to be as supportive of the fact. So, net margin could be a moderate negative for India. But there is so much more at this point that will depend on what comes out of India and its own political situation. Its own economic policy making that comes out of New Delhi that presidential election in the US will be a backdrop that might have some effect on the short-term. But I do not know if its going to be a big drag or a big support for the Indian stock market performance beyond this week. Q: I guess results will be out in the next 90 minutes.  If it’s Obama as people were expecting last night, what do you expect global and Indian markets to do, just the day one reaction? A: It is hard call, I am seeing the S&P future is showing down almost 1 percent and this is with the news looking like its confirming Obama victory. If you would have asked me the same question a few hours ago I would have assumed more action in case President Obama won. But I think markets are strange animals. Sometimes its almost impossible to predict what will be the next piece of reaction. The market is reacting more to now that the election is over. Let’s focus on the fiscal cliff and take a few chips off the table while we wait for clarity from both sides of the candidates as to how they are going to resolve it. But, I would have assumed that status quo would mean a small move in the market up or down without necessarily anything dramatic happening. So we will wait and see what the futures are indicating. Turns out to be the true market reaction when the market trade a full day in the US tomorrow.