US elections 2020 a significant event for the Indian market, but not the Trump vs Biden debate

Even as COVID-19 and its impact on the economy remain among the top market-driving forces, the upcoming US election on November 3 is what could derail the momentum of the markets across the globe, said analysts.

Mark Mobius in the latest interaction with CNBC highlighted that if the upcoming US Presidential Election ends in a contested outcome, this could cause a dramatic fall in the stock markets.

The market is likely to witness heightened volatility as we approach the US elections. The US will conclude its 59th quadrennial on November 3, 2020.

While the impact of the US election may not linger, there may be even a knee-jerk reaction globally, experts think.

"There is a high probability of a knee-jerk reaction in equities globally as well as domestically. However, the impact may be short-lived. The broader policy path will continue with or without Donald Trump with some minor changes and economics will prevail over sentiments," said Prasanna Pathak, Head of Equity, Taurus Mutual Fund.

"The structural issues and concerns will prevail. A few things which may be under the carpet may come out post-elections. We would prefer to adopt a cautious strategy going into November," said Pathak.

The US election is important for India not only from the economic point of view but on the strategic front too.

However, it is unlikely that there will be a major shift in the policies of the USA for India if a leadership change occurs there.

Experts point out that recent American Presidents - whether Republicans or Democrats - have strengthened the level of relationship with India further.

Of course, there may be some tweaks and twists in the case of leadership change, but on a broader scale, no significant policy-related change is expected.

As far as the Indian market is concerned, a victory for Donald Trump will be a status quo and it may infuse some minor volatility. However, Joe Biden's victory may be a strong trigger for the market.

"Volatility will be higher during US elections. Victory for Donald Trump would bring things back to usual, as he is perceived to be pro-market. Victory for Joe Biden may cause a knee-jerk reaction, especially post his comments on raising taxes. But in the long-term, the US elections are a non-event and markets will run their own course. Both candidates are expected to adopt a pro-India stance," said Amar Ambani, Senior President and Head of Research – Institutional Equities, YES SECURITIES.

Arjun Mahajan, Head - Institutional Business at Reliance Securities, points out that traditionally, the Republican administration has been beneficial for India in terms of economic policy.

"The last Republican president George W Bush was instrumental in getting the Nuclear treaty done and cleared. Even Trump has been so far good for India. When China started its aggressions in the Ladakh sector, it was President Trump who sent a navy fleet in the South China sea to put pressure on China to back down," Mahajan pointed out.

"In fact, post this pandemic, there is likely to be an increase in US support for India in all aspects. The USA desperately needs India. Hence, whichever party comes to power, they are going to be pro India," Mahajan said.

However, Mahajan also added that Trump's policy of America First has not been beneficial for Indian IT companies until before the pandemic. Trump has been changing the H-1B visa norms, which has been a cause of some concern.

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