‘Stock markets warming up to a Biden win’

‘Indian markets may initially react and follow the pattern of US and other global markets post US elections.’

It is not just the United States of America that is holding its breath on the eve of one of the most hard-fought — some would say, downright dirty — presidential election campaigns, even investors in India and elsewhere are keenly tracking its outcome.

For the 59th presidential election won’t just decide between incumbent Donald j Trump and Democratic Party challenger Joe Biden, but also decide, among other things, the direction of the Indian as well as global equity markets.

“If President Trump gets re-elected then we can expect status quo on most policies with some kind of elevated geopolitical risk, especially on US-China ties. Fiscal stimulus would continue in the US, but at a slower pace, which could be disappointing. Expect markets to remain range bound,” says Ashish Nanda, executive vice president and business head — PCG, Commodities and Currency Business at Kotak Securities Ltd.

“A win for the Democrats could lead to higher taxes and capital gains and tighter regulations, especially for the energy, financial and technology sectors,” Nanda tells Prasanna D Zore/Rediff.com.

How do you think the Indian stock markets will react to a Trump or Biden win? Will they react differently?

Markets appear to be warming up to a Joe Biden presidency and Democrat control of the Senate and House of Representatives after the November 3 US elections.

This can be seen in the polls and through the renewed decline in the US dollar, rise in US treasury yields and outperformance of Emerging Market versus Developed Market equities this month.

If President Trump gets re-elected, then we can expect a status quo on most policies with some kind of elevated geopolitical risk, especially on US-China ties.

Fiscal stimulus would continue in the US but at a slower pace, which could be disappointing. Expect markets to remain range bound.

The Democratic party is considered to be more socialist so we can expect a larger stimulus to come if they are voted to power.

A win for the Democrats could lead to higher taxes and capital gains and tighter regulations, especially for the energy, financial and technology sectors.

The Democrats have proposed partial reversing of the 2017 Tax Cuts and Jobs Act. US markets could face a higher downside risk if the Democrats come to power.

Indian markets may initially react and follow the pattern of US and other global markets post US elections.

As policy changes may take time to get implemented in the US, expect Indian markets to come back to local issues, earnings and valuations from early 2021.

Before any event of the scale of the US presidential election, the volatility in Indian markets spikes up. Any advice for investors and traders to protect themselves from getting trapped by the Volatility Index?

The CBOE’s (Chicago Board Options Exchange) VIX Index in the US has already shot up to 38 per cent levels, indicating very high volatility just before the US elections.

If there is a single party win without any dispute, then expect the CBOE VIX Index to cool down.

In relation to the higher VIX Index. we haven’t seen any major sharp correction in the US markets indicating investors could be taking a broader call that support from central banks is here to stay for a longer time even in calendar year 2021 and bond yields might remain on the lower side for quite some time.

The NSE VIX Index in India has moved up from a recent low of 18 per cent to 24 per cent, indicating some risk getting build into it. However, our VIX Index level is far lower than that seen in the US.

Extremely conservative and risk-averse investors can look at buying November month’s Nifty-50 put options to hedge their portfolio or create some cash.

If someone can digest 8-10 per cent fall in the Nifty-50 to 10,500-10,600 levels, taking it as a normal market correction, then there is no need to make any changes to the existing holdings.

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