A Trump win could trigger a short-term rally in Indian equities, says Emkay Global

A Trump win could trigger a short-term rally in Indian equities, says Emkay Global

All eyes are on the US Presidential elections and equity markets globally are seeing heightened volatility on the back of the close fight and uncertainty surrounding the poll outcome. The impact of the uncertainty can be gauged from the fact that the Indian benchmark Sensex lost nearly 1,500 points during intra-day trading on November 4.

While the poll outcome is still a day away, Emkay Global, in its latest report, has said that the Indian equity markets may temporarily rejoice the spillover of US equities rebound in case of a win for Republican candidate Donald Trump.

The domestic broking firm believes that Trump’s win could lead to higher tariffs on China that would indirectly benefit the sentiments towards India. Also, that could lead to reversal of the ongoing foreign outflows.

This assumes significance as the month of October saw foreign institutional investors (FIIs) selling Indian shares worth a whopping $11.2 billion. The uncertainty around the US Presidential elections is being cited as one of the key factors leading to FII outflows.

Meanwhile, Emkay Global is of the view that “China equities would bleed” if there is a sweep by the Republican Party, which, in turn, would be “tactically positive” for India in terms of FPI positioning.

Also read: Trump or Harris: Stock market's reaction to the US election outcome may differ

“Our equity strategy team believes that a Red Sweep would probably trigger a short-term rally but its sustenance depends on earnings momentum and valuations, both of which are weak… A Dem (Democratic party) Sweep could trigger a fresh wave of selling, and a significant correction from here (5%+) should be bought into - the impact on the Indian economy and markets is marginal. The medium term play for India may not differ in either Democrat or Republican regime,” stated the report.

“We believe as the world navigates the imminent period of higher growth and inflation variability in the world, and probably redefine the conventional investing playbook, the India investing strategy may be no different, even as she enjoys some structural growth levers vs EM peers,” it added while highlighting that “there will be challenges sustaining that rally globally, and domestically as well”.

The big challenge of a Trump presidency would be the tariffs – though China is the main target, India will also feel the effects, it added.

Incidentally, Emkay Global believes that rates and forex market could be the first casualty.

“The spillover of bond and FX volatility via global financial markets route would mean the aim of financial stability may precede inflation management and thus merits why some EM central banks, including the RBI, would want to see these uncertainties resolved before acting,” stated the report.

“This makes the December rate cut call tricky and possibly a shallower rate-cut cycle, following the Fed… Given lower FPI exposure of India vs peers on sovereign debt funding (~3% FPI share currently), structurally better demand from domestic players, and better fiscal profile in general could keep India’s bond risk premia relatively lower than peers. However, we will watch for evolution of FX and how the RBI chooses to manage the FX play amid global volatility…” it added.

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