What a US Election Could Mean for Indian Equities

What a US Election Could Mean for Indian Equities
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Impact of the 2024 US Presidential Election on India's IT Sector and Investment Landscape

This election result may impact Indian equities directly, given the closeness of the bilateral relationship between India and the United States. Whether Kamala Harris or Donald Trump is elected president of the United States, Indian firms with American counterparts expect market volatility that could affect further expansion in these industries.

Impact on Indian IT Sector: Revenue, Workforce, and Currency Factors

India's IT giants depend highly on clients based in America, where TCS, Infosys, Wipro, HCL Technologies, and Tech Mahindra are among the major gainers. Hence, the sector is sensitive to the U.S. election, as the results can impact revenue, working models, and the exchange rate. The India Brand Equity Foundation estimates that India's IT and business services market could reach $19.93 billion by 2025, underscoring the industry's heavy dependence on international clientele, particularly American ones.

If Donald Trump is re-elected, analysts at PhillipCapital predict that his past immigration policies could again surface, potentially creating challenges for Indian IT firms reliant on US-based employees. In response to this possibility, many Indian companies have preemptively increased hiring within the U, utilized subcontractors, and established near-shore delivery centres to mitigate disruptions. 

Conversely, Kamala Harris is expected to maintain a more liberal approach to immigration, which could benefit the industry by making it easier for Indian firms to maintain or expand their US-based workforce. 

However, Saurabh Patwa, Head of Research at Quest Investment Advisors, notes that previous US elections have shown minimal impact on IT spending patterns in American corporations, indicating that spending trends may remain steady regardless of the outcome.

Geopolitical and Sector-Specific Concerns for Indian Investors

Beyond IT, Indian investors are evaluating potential shifts in trade and policy in sectors like defense, energy, and pharmaceuticals, given the strategic alliances and trade flows between the two countries. Current US geopolitical sentiments, including bipartisan skepticism toward China, could foster stronger US-India trade relations, creating new opportunities in sectors where India could fill gaps left by US-China tensions. 

However, complexities remain due to intermittent anti-India rhetoric in North American politics, which could temper enthusiasm and require diplomatic manoeuvring from Indian stakeholders.

A victory by either candidate could further strengthen US-India defense relations, with the US likely to continue increasing defense exports to India. However, clarity on long-term implications will likely only emerge after the next president assumes office and specific policies are outlined.

Market Stabilization Expected, Despite Short-Term Uncertainties

Amidst these variables, the Indian equity market appears poised to stabilize without drastic shifts due to the election outcome. Analysts foresee resilient demand across essential verticals, particularly in the US banking and financial services industry, which has recently shown signs of recovery and rising discretionary spending. This could support Indian IT companies in maintaining steady performance, even amid potential currency and wage fluctuations.

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