Biden win may lift Indian stock prices to new highs

Biden win may lift Indian stock prices to new highs

Indo-US ties enjoy wide bipartisan support in the US; so, it doesn't really matter who sits in the Oval Office. But markets are expecting Joe Biden to unveil a mega stimulus package, which will boost stock markets worldwide. India could be a major beneficiary of such a move.

Indian diplomatic circles are confident that regardless of who wins, the bilateral relationship between New Delhi and Washington will not undergo any major change.

The US presidential elections are tantalisingly poised at the time of writing this report. Like large parts of the rest of the world, investors in Indian stock markets are also waiting with bated breath to see who finally wins the keys to the world's most powerful office.

India-US ties to remain strong regardless

Indian diplomatic circles are confident that regardless of who wins, the bilateral relationship between New Delhi and Washington will not undergo any major change. That's because the strong and deep strategic relationship is based on shared values and a common geo-political perception about the Indo-Pacific and various other defence- and terror-related issues.

The size of the US stimulus package will matter for investors

But stock markets the world over are keenly waiting for the timing and size of the much expected US stimulus package. Analysts are speculating that this could be in the region of $1 trillion to $2 trillion.

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The US stimulus can only be financed by a raising taxes and higher spending. This will weaken the dollar, which will be a positive for emerging markets including India.

A Trump win, some market players in India said, will imply a continuity of policies; this is providing some comfort to investors. But these same investors are saying a Biden win coupled with a Democratic majority in the US Senate could inflate the size of the expected stimulus-cum quantitative easing (QE) package to as much as $5 trillion.

India to be a major beneficiary of QE in the US

If that happens, it will provide a massive boost to Wall Street as a large part of these funds will get invested in stocks. A part of these funds will also find their way into emerging markets. The main gainers here are likely to be India and China as these are the only two to have witnessed a positive inflow of foreign funds for the year so far. NSDL data showed that foreign funds have pumped in about $6.5 billion in net investments so far this calendar year.

A dipping dollar can only be a positive sign for the emerging markets which includes India.
A dipping dollar can only be a positive sign for the emerging markets which includes India.

Weaker dollar will be good for emerging markets

Such a large US stimulus-cum-QE package can only be financed by a combination of higher taxes and sharp fiscal loosening. This combination of measures will almost certainly weaken the dollar, which will be a positive for emerging markets including India.

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A Trump or a Biden presidency is not likely to make much material difference to the bilateral relationship, which is based on a shared geo-political congruence on important international issues. India's economic relationship with the US will remain steady and mutually rewarding.
A Trump or a Biden presidency is not likely to make much material difference to the bilateral relationship, which is based on a shared geo-political congruence on important international issues. India's economic relationship with the US will remain steady and mutually rewarding.

After suffering a massive 40 per cent erosion in value between January 14, 2020 when the S&P's BSE Sensex scaled its all-time high level of 41,994.26 to a recent low of 25,981.24 on March 23. Since then, i.e., over the last six-and-a-half months, it has largely recovered most of the lost ground closed at 41,893.06 on November 6, barely 100 shy of its highest peak.

investors are saying a Biden win coupled with a Democratic majority in the US Senate could inflate the size of the expected stimulus-cum quantitative easing (QE) package to as much as $5 trillion.

Global funds inflows partly responsible for rally in Indian stocks

At least a part of this rally is because of the infusion of liquidity into global money markets by European and other central banks. This trend, many expect, will get accentuated if Biden wins the White House and the Democrats gain control over the US Senate.

Markets may have priced in a Biden win

A Biden victory could potentially lead to a short-term panic-driven sell-off in US stocks, which, too, will result in more money flowing into emerging markets, including India.
A Biden victory could potentially lead to a short-term panic-driven sell-off in US stocks, which, too, will result in more money flowing into emerging markets, including India.

In fact, the sharp rally of over 2,000 points since the close of trading hours on November 2 could be a case of the market pricing in a Biden win and the expected mega stimulus-cum-QE package, some market players said.

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Such a package, however, will mean a higher fiscal deficit for the US. This could lead to a short-term panic-driven sell-off in US stocks, which, too, will result in more money flowing into emerging markets, including India.

Easing of US-China trade tensions could lift markets further

Observers will watch the US-China relationship closely after the elections but a Biden win could potentially inflate the size of the expected stimulus-cum quantitative easing (QE) package for India to as much as $5 trillion.
Observers will watch the US-China relationship closely after the elections but a Biden win could potentially inflate the size of the expected stimulus-cum quantitative easing (QE) package for India to as much as $5 trillion.

Then, a future Biden administration could dial down trade and other tensions with China. While this could hurt India in the strategic sphere, it would provide a relief to global markets, which have been badly roiled by the US-China trade war. This is yet another factor that could be driving the markets up.

But in sum, as discussed above, a Trump or a Biden presidency is not likely to make much material difference to the bilateral relationship, which is based on a shared geo-political congruence on important international issues.

But the markets and many investors in Indian stocks will cheer loudest for the candidate who is likely to offer the bigger stimulus-cum-QE package and this will inflate the value of their portfolios.

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