6 Upcoming Global Elections that Could Rock the Indian Stock Market

Nothing is more entwined in the actual world than politics and economics.

The people in power start regulating the capital that flows through the economy, which subsequently increases their authority.

The cycle is unbreakable.

2024 is the ultimate election year.

More than 64 countries, representing 4 billion (bn) people will elect their leaders. That is nearly half of the planet, making it the biggest election year in the history.

While these elections are going to create giant ripples across the strategic and geo-political fabric, let us try to understand the impact on the Dalal street.In this unprecedented election year, the Indian share market, like a ship in the ocean, will inevitably be swayed by the waves of global political change.

The elections in these 64 countries will not only decide their domestic policies but also shape their foreign relations and trade policies.

These changes could have far-reaching implications for international trade, foreign investments, and economic policies, all of which directly impact the performance of the Indian stock market.

As we delve into the specifics, we will focus on six key elections that are likely to have the most significant impact on Dalal Street.

Hang tight - the year 2024 promises to be a year of volatility, opportunities, and significant market movements!

#1 India

In May 2024, the largest democracy in the world and the fifth largest economy will hold elections for the Lok Sabha.

Foreign investors (FIIs) crave stability, and a decisive mandate can offer just that.

Continuity of the current government, with its focus on fiscal consolidation and infrastructure push, could see infrastructure, banking, and capital goods sectors waltz into a bullish rhythm.

We wrote about it recently - the stocks that could benefit from the upcoming elections.

Conversely, a change in guard could bring a new policy philosophy, potentially impacting sectors like energy, agriculture, and pharmaceuticals.

While a stable government might favor exports through trade facilitation measures, a populist tilt could see protectionist policies emerge, impacting sectors like textiles, chemicals, and auto components.

The global trade winds, however, will be the dominant melody, dictating the true export tempo.

A decisive mandate could potentially lead to increased inflows and a potential serenade of rising valuations across the board.

#2 European Union

In FY23, The European Union (EU) was the biggest trading partner with a trade surplus of US$ 15.8 bn.

The EU elections, scheduled to be held from 6 to 9 June 2024, are a significant event in the political landscape of Europe. These elections will determine the composition of the European Parliament, which plays a crucial role in shaping EU policies and legislation.

A pro-trade, free-market leaning EU Parliament bodes well for Indian exporters. If the Parliament greenlights a landmark trade deal, slashing tariffs and opening up new avenues for Indian textiles, pharmaceuticals, and auto parts.

Conversely, a Parliament tilting towards protectionism or euroscepticism can slam the brakes on trade, dampening Indian export prospects and impacting sectors like IT services, gems & jewelry, and chemicals.

The EU's monetary policy plays a crucial role in shaping global liquidity. A dovish European Central Bank, inclined towards quantitative easing and low interest rates, injects liquidity into the system, potentially finding its way into emerging markets like India.

This liquidity boost can fuel infrastructure and capital goods sectors, leading to a potential uptick in companies focused on construction materials, engineering equipment, and power generation.

Conversely, a hawkish ECB embarking on rate hikes can trigger capital outflows from emerging markets, putting downward pressure on Indian equities, particularly in interest-sensitive sectors like real estate and financials.

The EU's regulatory landscape has significant implications for Indian businesses. Stringent environmental regulations or data privacy norms in Europe can impose additional compliance costs on Indian companies operating in the bloc.

This could impact sectors like IT services, which handle European data, and manufacturing units with European operations.

Conversely, harmonization of regulations across the EU can create a more predictable and level playing field, benefiting Indian exporters across various sectors.

#3 United States of America (US)

In FY23, The US was the second biggest trading partner with bilateral trade standing at US$ 118.2 bn and a trade surplus of US$ 24.6 bn.

The US, being the world's largest economy, plays a pivotal role in global economic dynamics and has the greatest impact on the Indian economy.The upcoming 2024 United States presidential election will be the 60th quadrennial presidential election, scheduled for Tuesday, November 5, 2024. Voters will elect a president and vice president for a term of four years.

A Democratic sweep means potential increases in corporate taxes and social spending, boosting sectors like infrastructure and healthcare but potentially squeezing profit margins for others.

Conversely, a Republican victory could usher in tax cuts and deregulation, favoring energy, financials, and consumer staples.

A protectionist Democratic administration might tilt towards friend-shoring, impacting Indian exports of textiles, pharma, and IT services.

Alternatively, a Republican focus on free trade could open doors for Indian exporters, particularly in commodities and agriculture.

Either party's stance on the Sino-Indian trade war will be crucial for export-oriented sectors.

A dovish stance under a Democrat-controlled Congress could keep the liquidity taps open, benefiting Indian equities across the board.

However, a hawkish Republican-led Fed might raise interest rates, dampening foreign inflows and potentially triggering capital flight from Dalal Street.

A Democrat in the White House might focus on alliances and multilateralism, potentially easing geopolitical tensions and benefiting sectors like travel and tourism.

In contrast, a Republican president could pursue a more unilateral approach, stoking uncertainty and impacting sectors sensitive to global conflict.

A green wave under Democrats could fuel renewable energy, electric vehicles, and clean technology in India, while a Republican administration might favor traditional energy sources like coal and oil.

#4 Indonesia

Indonesia is one of the biggest trade partners of India with a bilateral trade amounting to US$ 36 bn with a trade deficit of US$ 17.8 bn in FY23.

The upcoming 2024 Indonesian general elections are scheduled to be held on 14 February 2024. These elections will elect the President, Vice President, and People's Consultative Assembly (MPR).

Indonesia, a resource-rich giant, caters to India's demand for coal, palm oil, and minerals. A pro-business Jokowi win could streamline resource exports, benefiting Indian infrastructure and power sectors.

However, a challenger victory might prioritize domestic resource utilization, potentially disrupting supply chains and impacting Indian companies reliant on Indonesian imports.

A Jokowi re-election, with its focus on infrastructure development and sustainable tourism, could see a surge in Indian tourist arrivals, benefiting Indian travel and hospitality stocks.

Conversely, a change in guard might prioritize domestic tourism, potentially dampening Indian outbound travel and impacting relevant sectors.

The IT and pharmaceutical sectors in India are likely to be impacted as changes in political stability and economic policies can affect outsourcing and drug pricing.

#5 Russia

India's total bilateral trade with Russia stood at US$ 44.4 bn in FY23. The trade deficit was US$ 38.8 bn.

The eighth Russian presidential election is scheduled to be held from 15-17 March 2024. Russia, being a major global player, expected to have a significant influence on the Indian stock market.

Russia fuels a significant portion of India's energy needs.

A Putin re-election, synonymous with continued control over energy resources, could ensure stable supply chains, benefiting Indian refiners and power companies.

However, a new leader, potentially with a different approach to resource allocation, might disrupt energy flows, impacting both supply and pricing, with downstream consequences for Indian energy-dependent sectors.

A Putin victory, seen as reinforcing Russia's geopolitical isolation, could tighten sanctions further, potentially hampering Indian trade and investments in sectors like defense and infrastructure.

Conversely, a more conciliatory leader might thaw the ice, opening doors for increased economic engagement and benefiting Indian exporters of pharmaceuticals, chemicals, and IT services.

A re-elected Putin could fuel geopolitical tensions, impacting sectors like travel and tourism.

However, a new leader may prioritizing diplomacy and might bring in an era of stability, benefiting sectors sensitive to global conflict.

#6 South Korea

With a trade deficit of US$ 13.2 billion, bilateral trade between South Korea and India was worth US$ 25.4 billion in FY23.

The South Korean legislative elections, scheduled on April 10, 2024 will serve as a mid-term evaluation of the conservative Yoon Suk Yeol administration.

The outcome will dictate how easily the Yoon government can proceed with its objectives as it moves into the third of its five-year tenure.

A Democrat majority, echoing the current administration's focus on R&D and technology exports, could fuel a surge in Indian companies supplying raw materials and ancillary services.

Rare earth elements mining and processing companies, specialty chemicals manufacturers, and IT infrastructure providers will be highly benefited.

Conversely, a more conservative legislature, prioritizing domestic consumption and potentially closer ties with China, might disrupt the tech supply chain, impacting Indian exports in this crucial sector.

A Democratic party win, advocating for free trade agreements, would continue to keep Korean markets open for Indian exports of textiles, pharmaceuticals, and auto parts.

However, a shift towards protectionism under the conservative People Power Party majority might raise trade barriers, negatively affecting this lucrative trade flow.

If the Democrats win and prioritize green energy and sustainable infrastructure projects, it could provide opportunities for Indian companies that specialize in smart city technologies and renewable energy solutions and thus boosting their value.

Conversely, a conservative focus on traditional infrastructure might limit opportunities for Indian green tech players.

In Conclusion

The year 2024 is crucial for global markets due to several important elections.

These include the Lok Sabha elections in India, the EU elections, the US presidential elections, and elections in Indonesia, Russia, and South Korea.

A stable government in India that supports reforms could boost sectors like infrastructure, banking, and exports. Political instability or protectionist policies could lead to market corrections.

Internationally, the outcomes of elections will continue to impact the Indian markets.

In this uncertain scenario, the best strategy for investors is to diversify their investments across sectors, anticipate policy changes, and protect against global risks.

Those who adapt to the market trends will likely prosper.

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