Will it be Obama or Romney? Chances are that you have heard this question asked many times in the past few days. The US is about to go to elections and the Indian markets are already geared for the run-up.
Investors and investment managers in India hold the view that either of the Presidential contestants winning will benefit India.
The re-election of Democrat President Barrack Obama will be devoid of any structural changes, thereby lending a certain sense of stability to the US markets. Markets elsewhere will perhaps continue to gain strength from that stability.
The election of Republican candidate Mitt Romney would also bode well for markets as traditionally ‘bulls have always favoured the Republicans,’ said Prateek Pant, Director - Products & Services, The Royal Bank of Scotland. “Typically, Republicans have had a very pro-rich leaning. Markets have, therefore, in the short-term seen raging bull-runs after Republicans formed the government.”
But analysts are more concerned about the fiscal cliff and how the new President will tackle that. Fiscal cliff is a series of measures to be taken by the US Government at the end of 2012 which would lead to heavy spending cuts and raise taxes. Markets world over are worried and calling it the single-most serious threat to the global economy.
Among the spending cuts to be undertaken by the US Government are: health rebate rollback and slashing of the defence budget.
“Analysts in the US are predicting a 50 basis points drop in the GDP growth rate if the fiscal cliff comes into effect. For a $14-trillion economy, half a per cent decline in GDP growth would mean 20 per cent de-growth of its economy,” said N. S. Venkatesh, Chief General Manager & Head- Treasury, IDBI Bank.
Equity markets have been volatile in line with the global markets, and will continue to be so in the short-term, said market-men.
“Starting 2013, markets will have a tough time. Unless there is more movement on the policy front in India and the Government is able to surprise, Indian markets will continue to be volatile,” said Jagannadham Thunuguntla, Strategist and Head-Research, SMC Global Securities.
Dollar, for its part, will continue to strengthen in what could be called a ‘relief’ rally, said experts. The rupee today closed down 79 paise to Rs 54.60 owing to uncertainty over elections, which led to investors buying into dollars. The dollar-currency has traditionally rallied post-elections, they added.