US mid-terms may help D-Street break free from geopolitical overhang
The upcoming US mid-term elections will potentially influence global markets and trade policies. Investors are closely watching whether the outcomes will ease uncertainties regarding tariffs and immigration. The results could shape the policy direction and affect the sentiment of global investors. Analysts suggest that the focus should remain on domestic earnings growth and financial flows.
The US mid-term elections are the focal point for investors concerned about the potential easing of global geopolitical tensions. These elections will determine which party holds control of the House of Representatives and the Senate for the remainder of President Donald Trump's term. Ravi Singh, chief research officer at Master Capital Services, suggests that the outcome could impact Indian markets through trade policy, investor sentiment, and currency movements.
If Trump loses control of Congress, the scrutiny of his tariff policies may lessen, potentially reducing some trade concerns. However, if Republicans maintain their grip on Congress, existing trade and immigration policies could persist, keeping uncertainty elevated. Early results from the elections are anticipated in India on Wednesday morning as polling stations close across US time zones.
Historical data indicates that the Nifty has exhibited the highest gains in the one-, three-, and six-month periods following US midterm elections. In seven mid-term polls since 1998, the Nifty achieved gains five times in both the one- and six-month post-election periods, as well as in the three-month post-election period.
Madhavi Arora, chief economist at Emkay Global Financial Services, contends that a Democratic-controlled Congress, while able to check Trump through legislative means, would still retain significant authority over tariffs, immigration, and foreign policy. She believes that fiscal policy will likely remain expansionary under either election outcome, providing a cushion for US bond yields.
Arora also warns that the Iran conflict could potentially escalate after the midterms, regardless of the results. Ankur Punj, managing director at Equirus Wealth, advises investors not to base tactical allocation decisions solely on the US political outcome. Instead, he encourages them to focus on domestic earnings growth, valuations, and asset allocation. Punj emphasizes that the primary market drivers for India will be crude prices, US yields, and Foreign Institutional Investor (FII) flows.
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