The Indian stock market appears to have delivered its verdict on the US midterm elections even before the political dust has settled. The emphatic Democratic victory, which strips President Donald Trump of Republican control of both chambers of Congress, has been greeted with a rally in Indian equities, a sharp correction in crude oil prices and signs of foreign investors returning to the market.
The reasons for the optimism are not difficult to see. A weakened Trump administration could mean less room for fiscal expansion, greater congressional oversight of foreign policy and trade, and, importantly, a reduced appetite for geopolitical adventurism. For India, which has borne the brunt of elevated oil prices, tariff uncertainty and a volatile external environment, this definitely signals a meaningful improvement in the macroeconomic backdrop.
The Nifty has risen 5.6 percent over five trading sessions through November 4. Foreign portfolio investors have also turned buyers for four consecutive sessions, purchasing equities worth Rs 7,284 crore on November 4. On Thursday, the benchmark index opened 1.66 percent higher, taking it to a near three-month high.
The election has provided an additional catalyst to a market that was already beginning to find its footing. The rally is being driven by the prospect of three favourable developments: lower oil prices, easing global financial conditions and a recovery in corporate earnings.
For India, the most consequential fallout of the election could be a reduction in geopolitical risk premium embedded in crude prices.