The US Presidential Elections is underway and it is becoming increasingly more competitive. As more and more American voters line up to decide the next President for their country between Donald Trump and Kamala Harris, investors are eagerly awaiting the results.
In a too-close-to-call election, it is evident that markets will feel the impact of the final results and this effect would be felt at the global level.
Emkay Global’s Madhavi Arora predicted that a full sweep by Trump will be the most positive outcome for the equity markets due to his supportive corporate tax regime and low regulatory burden, reported The Economic Times.
However, she pointed out, “Any gridlock is technically equity market-negative. However, the gridlock would be the most bearish outcome for spending, implying good news for bonds. Expect bearish steepening on a full sweep, with higher pressure on term premium in a Red sweep.”
A Win For The Republicans
A clean win for the Republicans will turn out to be completely positive for equities in the near term through reduced corporate taxes and easier regulations. Domestically, this result could also trigger a short-term rally in the stock market, the research firm said.
“However, a Nifty rally will depend on valuations and earnings momentum as well and not just the outcome of who becomes the next US President. In the bond markets, a possible delay in deep Fed cuts could spill on US Treasuries and bear flattening may make a comeback,” the estimates of Emkay Research stated.
Victory For Trump With Split Congress
If Donald Trump manages to become President but with a split Congress, the stock markets will be negative in the near-term, the research firm said. This will be a result of the reduced tax concessions, FTA negotiation, possible immigration control, and headwinds from tariffs.
Democrats Get A Clear Win
A sweep for the Democrats will be negative for the US currency in the immediate term, Emkay noted. For equity also, it would turn out to be net negative as a result of higher corporate and personal taxes and more regulation. “A Democrat sweep could trigger nervousness in global equities and leave India somewhat vulnerable. Any major dip should, however, be bought as the core fundamentals for India are likely to be unchanged. IT could be vulnerable in the short term (high valuations, worries over corporate tax hikes) but there is little else from a sectoral perspective,” the brokerage said.
Harris Wins, But Congress Remains Split
A split Congress could result in a rally for US Treasuries and help India bonds rally on global factors. However, the outcome for equities would remain negative due to lower tax concessions. Emkay stated that growth and inflation variability would keep equities unsteady in the medium term.
US Election 2024 | Second term for Trump likely to have limited negative impact on Indian IT sector: Report
The US President holds substantial authority over immigration, making the outcome of the upcoming US presidential election crucial for the future of employment-based immigration policies.
During his first term, former President Trump enacted Executive Order 13788, “Buy American and Hire American,” which increased restrictions on H-1B visas and led to a notable rise in H-1B and L-1 visa denial rates.
According to global brokerage JM Financial, these measures had a pronounced impact on Indian IT services companies, which were highly reliant on these visas at that time.
The brokerage analysed USCIS data on initial approvals and denials for H-1B and L-1 A/B visas over the past decade, noting a significant increase in initial H-1B denial rates from 4% in 2015 to 17% in 2019. L-1 A/B denial rates also surged by 12 percentage points to 28%.
The analysis further highlighted that denial rates have dropped to decade lows under the Biden administration. However, a potential Trump administration could trigger a reversal, with stricter policies possibly driving denials higher again.
The brokerage noted that major IT services firms now have a much lower dependency on these visas, providing substantial insulation.
It estimates that, as of FY17, around 65% of Infosys U.S. employees relied on H-1B and L-1 visas. This fell below 50% in FY20 and is likely to have trended down. Infosys’ ‘expand localisation’ strategy has been a key part of its approach. Similarly, Wipro reported 69% of the global workforce as localised in FY20. 50-80% reduction in H-1B visa approvals for Infosys, TCS, and Wipro over the past 10 years also reflects lower visa dependence, it stated.
Additionally, Trump’s previous administration attempted to increase wage obligations for H-1B visas through a Department of Labor rule in 2020, though it was later vacated in court. JM Financials’ analysis suggests that average wages for H-1B roles are now 25% above the prevailing market wages, which may lessen claims that H-1B employees displace U.S. workers due to lower costs.
Limited impact
On a positive note, Trump’s proposal to reduce the corporate tax rate for domestic production from 21% to 15% could benefit IT services demand by alleviating budgetary constraints for US firms. The Tax Foundation, a non-partisan think tank focused on US tax policy, estimates that Trump’s tax policies could have a positive impact on the country’s long-term GDP.
JM Financial believes that, overall, a Trump presidency would have a limited negative impact on Indian IT firms, while a potential Harris administration would largely maintain the current policies.
“We looked at three bills associated with employment-based immigration that are currently tabled in the US Congress. These bills aim to protect the US workforce while prioritising highly skilled workers for employment-based immigration and improving the overall process (e.g., reducing application backlogs). These could, at worst, increase compliance requirements for Indian IT services, in our view. The US presidential election might have limited bearing on the passage of these bills, though,” said the brokerage.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.