Donald Trump vs Kamala Harris: Likely impact of US elections on Indian stock market, these 8 sectors

The much-awaited US elections will be held on November 5 and all eyes are on whether Republican Donald Trump wins the presidential race against the Democratic opponent Kamala Harris. This would decide the fate of many export-oriented domestic sectors such as information technologies, pharmaceuticals and textiles. Indirectly, it may influence metals and oil & gas sectors, industrials, defence and even utilities, analysts said. 

Trump vs Harris
A Trump win would bring uncertainty over tariffs, but could be short-term positive for stock markets. Analysts are mixed on a Democratic comeback, with some see up to 5 per cent correction for domestic stocks while others see a neutral market reaction.

Ashika Stock Broking said polls suggested there is a considerable degree of anti-incumbency that could favour the Republican Party. Donald Trump also appears to be ahead, albiet with a very small margin that would make him the favourite to win and would imply that Harris is the underdog, it said.

Based on the US electoral system, the outcome will be determined by a handful of swing states Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania and Wisconsin. Of all these states, the main focus will be on Pennsylvania given its seat share and as that represents Trump’s main route to victory Harris still has alternative routes.

“However, whoever wins Pennsylvania has the highest probability of winning the elections. Donald Trump victory could primarily result in a return his tariff proposals, which could weigh on the global economy, particularly in the non-US world, while his fiscal policy measures could ensure that US growth remains strong resulting in outperformance of US equity market relative to the rest of the world, a much stronger global dollar and weakness in Brent crude oil prices,” Ashika Stock Broking said.

If Harris wins, the current trends which are in place will reverse. In such a scenario, the prospect of a global ‘soft landing’ with US growth converging towards the rest of the world could underpin medium term price action. Fiscal policy would be expansionary but not to the extent expected in case of Trump that implies lower yields than otherwise. “However, the impact on equity markets, energy prices, gold prices, base metal prices and the global USD could be neutral,” it said.

Emkay Global said stock markets may temporarily rejoice the spillover of US equities rebound in case of a Republican sweep . Not to mention, China equities would bleed due to increased market uncertainty and it could also be tactically positive for India on the FPI positioning and flows front.

“However, there will be challenges sustaining that rally globally, and domestically as well. 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,” Emkay said. 

A Democratic sweep could trigger a fresh wave of selling and a significant correction from here (5 per cent) should be bought into as the impact on the Indian economy and markets is marginal. Emkay Global said.

Polling errors
The presidential polling shows four swing states with a margin of less than 1 per cent. Polls two weeks out from an election tend to be off from the final result by 3-4 percentage points and the magnitude of polling errors has increased in recent election cycles, Nomura India said.

“Polling errors tend to be correlated between swing states, meaning one candidate will likely outperform broadly. Trump outperformed polls in 2016 and 2020. We do not see a strong case that this bias should persist though. Many pollsters have tinkered with their methodology to attempt to correct for past errors, and polling errors are generally not correlated from election to election. In the margin of error,” Nomura India said.  

Less than two weeks out from the election, polling averages showed four swing states with a margin of less than 1 per cent. In addition, three additional swing states are polling with a margin of less than 2 per cent. This is the tightest set of swing state polls in decades,” it said.

Sectors to watch

IT services: Under both the parties, the domestic IT software exporters are expected to see negative impact on their margins due to higher onshoring. That said, a Democratic win could be more detrimental, as higher US corporate taxes could affect discretionary technology spending. On the other hand, the Republican policy of revoking China’s MFN status could lead to higher hiring for Global Capability Centers (GCC) in India, which would be positive for the IT midcap companies, Antique Stock Broking said.

Pharmaceuticals: Both the parties are looking to reduce prescription drug costs. The Republican Party intends to raise competition in generic business (negative for US generic pharma companies); expand beneficiaries in the Medicare program (positive as it helps increase generic volumes).

Democrats, on the other hand, are aiming for faster approval for first-time generics (positive for US generic pharma companies).

Industrials: Donald Trump’s focus is to make the USA a global manufacturing superpower, which may be beneficial for MNC industrial companies like ABB, Siemens, Cummins, Honeywell, GE T&D, Hitachi Energy, which are in the process of becoming important partners in the value chain of their parent companies having a dominant presence in the USA, Antique Stock Broking said.

Oil & gas: The Trump administration may be a supporter of traditional oil & gas (higher exploration and drilling and roll back of green energy benefits) as against Kamala Harris’s focus on climate and emission. Under Trump, lower oil and gas prices would be negative for upstream and positive for OMCs such as HPCL, BPCL and IOC and city gas distributors such as IGL, MGL and Gujarat Gas.

Under Kamala, more penalties/costs could be loaded on oil and gas producers in the form of carbon credit costs.

Defence: Under the Trump administration, resolution of global conflicts can lead to easing of supply chain for defence companies such as Bharat Dynamics and HAL. Also, the focus on ensuring America’s military is the strongest and best-equipped in the world is likely to be a positive for the defence ecosystem in India.

Metals:  The US election outcome is expected to be largely neutral as a tariff hike is already imposed on Chinese steel and aluminum imports and no new policies are likely to be announced by either parties.

Textiles: Under the Trump administration, any imposition of trade barriers with China may benefit Indian textile players as China continues to be the largest exporter of textile products to the US.

Utilities: The Democratic Party aspires to invest in climate and energy infrastructure, leading to higher demand for solar module exports. On the other hand, demand for solar module exports may get impacted under the Republican rule due to higher reliance on LNG and withdrawal of IRA’s 30 per cent tax credit for residential solar.