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US election 2016: How Sensex reacted in past 2 decades; what to expect tomorrow

Over the past couple of weeks, stock market traders world over are not overly concerned over the lead economic indicators and factors such as sluggish growth, Brexit woes or subdued oil prices that usually drive the sentiment in a normal course of a trading session.

For the time being, investors are looking beyond these indicators, and are mostly working out their strategy in accordance with the news flows on the crucial US election front. In less than 24 hours time, US citizens will elect either Hillary Clinton or Donald Trump as their next president, which has been so far a closely fought battle between the two candidates.

The mood is of utter caution across the global equities with a slightly negative bias, as investors remain sceptic about the policies both are likely to pursue in their four-year term.



But the point to ponder over is will the US poll outcome have a deep impact on Indian stock markets in days to come. In the past, US elections had hardly been a dictating factor unlike other global vagaries of recent past, which had pushed the domestic markets in deep red followed by extended correction.

To give a sense, Firstpost collated data since 1992 elections and how Indian equities behaved after the US elections results were declared.

In percentage terms, the Sensex witnessed its biggest fall a day after the US election results in 2008. The index dropped nearly 5 percent, while it slumped 7 percent a week later and crashed by 13 percent over the next one month.

However, analysts relate the fall in 2008 to the outbreak of global financial crisis during the early part of that year, which triggered stock market mayhem across the world equity markets.

When George Bush was elected in 1992, the Sensex plunged 11 percent in just one week after the US election results and crashed another 10.5 percent in next month.

Between 2000 and 2012, Sensex recorded impressive gains in next month post the US election results, excluding the 2008 year when the global financial woes dominated the overall market sentiment.

US elections - Sensex - Nov 8, 2016

Back in 2016, domestic stock markets have mirrored the global markets trend and exhibited weakness in last few sessions. Stock market traders have mostly exercised a wait-and-watch game, which is very much evident over the sideways movement seen in the markets with benchmark Sensex ending in the red in 7 of the last 10 trading sessions.

The current weakness in Indian equities was mostly the outcome of nervousness among the predominantly foreign investor fraternity. These overseas investors have so far sold Rs 4,441 crore worth of local shares in last 11 trading sessions clearly indicating their nervousness during the run up to poll results.

"Foreign funds are not just exiting Indian markets, but across the emerging market economies in view of the US elections. Previous analysis have shown that a Clinton win will be good for Indian markets. Hence, investors are cutting their exposure as they are worried a Trump win could be bad for Indian and other emerging economies," said AK Prabhakar, Head of Research, IDBI Capital.

So, is the Indian stock market bracing for an extended correction in case Donald Trump emerges winner.

Stock market experts assert that a Trump win could fuel a knee-jerk correction in the Indian markets, which may last for just a couple of sessions.

"In case Trump wins the elections, Indian equities may witness a 300 point fall with Nifty holding at 8,200 level. FIIs are feeling the heat on worries of a Trump win, as he has talked about protectionism during his election rallies. His win could result in exodus of foreign funds from local markets for few more sessions," said Prabhakar.

In fact, Prabhakar sees November as a make or break month for Indian markets, as the poll outcome would then be followed by worries of a rate hike by the US Fed next month.

However, Dipen Shah, Senior Vice President at Kotak Securities, feel Indian equities may see some knee-jerk reaction initially in case of a Trump win, but the fall will be capped later as most of the negatives have been priced in the recent steady fall in markets.

"Markets are more matured now, and whoever wins the election, the focus will soon shift back to Indian economic fundamentals like private consumption and growth etc. In the past, Indian markets soon bounced back after the Brexit happened.," said Jagannadham Thunuguntla, Head of Fundamental Research, Karvy Stock Broking.

Data compiled by Kishor Kadam

Updated Date: Nov 08, 2016 16:22 PM

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