The US midterm poll results marked a comprehensive rejection of President Donald Trump and the Republicans. This shift caused Brent crude oil prices to fall 10 percent, which is a positive for India. While Indian investors feel upbeat, experts warn that markets remain overvalued and growth is still quite modest.
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The US midterm poll results marked a comprehensive rejection of President Donald Trump and the Republicans. Given the magnitude of turmoil created by Trump’s temperamental policies, the political battle in the US has global ramifications.
The immediate fallout of Democrats blue sweep was felt across financial and commodity markets -- Brent crude oil price is down 10 percent, US treasury yields are lower, the artificial intelligence (AI) stocks are flashing red, commodity and metal stocks are volatile and gold prices are shining bright. Asian equities are upbeat.
Cut to India, equity markets are in a celebratory mood. Led by auto, banking and IT stocks, there is euphoria among Indian investors as if the US mid-term results are signalling an overnight transformation in India Inc’s fundamentals. But in reality, such mandates and their implications often run the risk of being overread.
To be sure, the fall in crude oil prices is India’s moment in the sun. This is a clear macro positive for India, where the oil import bill is up 25 percent this fiscal year with Brent averaging $97/bbl. The hope is that the Republican rout in the polls will curtail further escalation in the US-Iran conflict and the West Asia crisis.
Another hope is that Indian equities will benefit from the rotation of foreign portfolio flows into India as the euphoria over continued AI investments wanes. This is because the newly elected US officials at the federal and state level could throw up powerful opposition to data centres — a helpful moderation on AI excesses.
Furthermore, there is hope that there could be a moderation in approach towards immigration policies (H1-B visas, green card) that would help the cause of India’s services exports, particularly the IT companies.
However, things cannot turn bright overnight. Today’s edition has a detailed, insightful interview with global investment advisory firm Bernstein’s Venugopal Garre, on what India needs to see in the equity market’s rally. He points out that despite the correction, India’s markets remain among the most overvalued globally (Nifty forward P/E is third highest behind S&P and Nikkei) while earnings momentum is modest at 7-8 percent growth. Upgrades aren’t coming yet. On top of that, several other emerging markets have garnered attention recently, increasing the competition.
Meanwhile, it is not good news on trade tariffs. India could find itself in a tricky position as the bilateral trade agreement with the US is still pending. My colleague Abhijit Kumar Dutta writes, “With his power at home under pressure, Trump may even take a more aggressive approach to foreign policy.”
In other words, barring crude oil prices, the issues that are stumbling blocks for equity markets to rally and lure foreign institutional and portfolio investors are not out of the way. In this article, Madhuchanda Dey from MCPro Research answers this question: Is the outcome of US mid-term polls a reset for Indian equities? While equities are rarely a one-way street, from a two to three-year perspective, India offers a compelling proposition – a diversified domestic-focused growth story, large pockets of value emerging in several well-run businesses and downstream AI applications creating new opportunities after the turmoil.
This is perhaps why Indian investors are gung-ho after Trump’s rejection in the US midterm polls. Of course, while there is hope, as Garre says, on policies, it is very difficult to take a call with Trump.
Read this FT article (available for MCPro subscribers) that details the impact of the poll results on financial markets. The Democratic sweep removes the risk of protracted bickering and uncertainty that could otherwise have hung over investors for weeks.
But it does not open the gates to nirvana in the markets.
Investing insights from our research team
Democrats sweep US mid-terms: Is it a structural reset for Indian equities?
Dabur Q2 FY27 — Better growth overshadowed by rising costs, key leadership exit
Power Grid: Project pipeline, growth outlook outweigh near-term execution challenges
Fractal Analytics: Strong execution, with product scale-up the next trigger
Prince Pipes Q2 FY27: Strong volume growth and margin recovery
Saregama Q2FY27: Turning content investments into earnings
Solar Industries: Defence and exports drive strong growth
Medanta Q2FY27: Strong growth, with capacity expansion driving the next growth phase
Deepa Jewellers: Expanding capacity and reach to drive strong growth
What else are we reading?
Don’t count on AI trade fatigue to lift India: Bernstein’s Venugopal Garre
Trump’s midterm Blues — What lies ahead?
Chart of the Day | Road developers diversify beyond highways, but risks rise
As Suzlon gains speed, familiar concerns re-emerge
TSMC’s $265 billion US investment could be a game changer for India too
Blue wave sweeps markets back towards normality (republished from the FT)
When the system can see GST invoices, arrest powers must go
The missing links in India’s manufacturing vision
India's Household and Its Poverty Decline: The asset others are paying to rebuild
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