By Anjali Sharma
WASHINGTON – Emkay Global Financial Services on Sunday reported that India’s financial markets may remain under pressure even after the US midterm elections on November 3, as high crude oil prices and ongoing geopolitical tensions continue to pose risks.
According to a report by Emkay Global Financial Services, a possible Democratic victory is unlikely to significantly limit US President Donald Trump’s control over foreign policy decisions.
The brokerage said a Democratic victory may not limit Trump’s foreign policy decisions or bring immediate relief to oil prices.
According to the media report, the brokerage warned that any fresh escalation in tensions between the US and Iran after the elections could push crude oil prices higher. This could put additional pressure on India’s balance of payments, foreign exchange market and stock markets.
Emkay said investors should not expect oil prices to fall immediately after the elections. It also cautioned that the possibility of another US strike on Iran could lead to a sharp rise in global crude prices.
The report said the impact of the US elections on India would be driven more by geopolitical developments than by direct market-related changes. The dollar, US bond yields, crude oil prices and global investor sentiment will remain important factors influencing Indian markets.
Emkay expected the Democratic Party to win control of the US House of Representatives, while its chances of securing a majority in the Senate have also improved.
The brokerage has estimated a 60 per cent probability of Democrats winning control of both chambers of Congress.
It has assigned a 30 per cent chance to Democrats winning the House while Republicans retain the Senate. The possibility of Republicans holding on to both chambers has been estimated at 10 per cent.
A Democratic majority in Congress could increase scrutiny of Trump’s decisions on tariffs and immigration.
Emkay believes that trade tariffs are unlikely to see major changes, as the President continues to have considerable executive powers over trade and foreign policy.
The brokerage also said investors should not assume that political deadlock in Washington would automatically lead to a sustained rise in US stock markets.
Historically, the S&P 500 has gained around 6 per cent in the 60 trading days following midterm elections. However, the current situation is different, as US equities have already risen around 12 per cent over the past six months.
The bond yields have increased and Brent crude prices have climbed around 61 per cent.
A fall in the US dollar, bond yields and crude oil prices would create a favourable environment for domestic financial markets in India.
Emkay cautioned that an improvement in geopolitical conditions should not be expected immediately after the elections.
The brokerage said a possible easing of tensions may not provide an immediate benefit to global markets, adding that any optimism following the US elections could be short-lived.
It also noted that India-US strategic ties are likely to remain strong despite political changes in Washington.
Cooperation between the two countries in areas such as defence, technology and their approach towards China is expected to continue, as these issues have support from both major political parties in the US.
