What will be the impact of the mid-term elections on the US-India trade deal?
It is tied to supply-chain diversification, technology cooperation, energy trade, and reducing dependence on China-centric manufacturing networks.
Depending on the scale of the loss, Trump may find it harder to impose or sustain aggressive tariffs on trading partners.
What's at stake is not just military funding but oil prices, and it could cut both ways.
Conversely, if funding cuts push stakeholders toward a ceasefire, oil prices could decline sharply.
The impact on the stock market may be more profound than the trade deal that’s near finalisation. However, the biggest risk may emerge internal turmoil in the US administration, and that would affect investors globally, not just in India.
By most estimates, the Republicans are likely to lose significant control of the US Congress in the upcoming mid-term elections in the US, the results of which will be revealed on November 3. There are at least seven areas where US government policy has been a catalyst affecting investor sentiment in India.
Most pundits expect Donald Trump’s party to perform poorly in the mid-term elections on November 3, and either lose control of at least one chamber of Congress or face a significantly weaker mandate. That would require investors to reassess several assumptions currently embedded in stock prices.
What will be the impact of the mid-term elections on the US-India trade deal?
First, the trade deal between India and the US may slow down if it’s not announced before the results. However, it wouldn’t really be a setback for New Delhi because the proposed trade pact is no longer just about tariffs. It is tied to supply-chain diversification, technology cooperation, energy trade, and reducing dependence on China-centric manufacturing networks. Both Republican and Democratic administrations have broadly supported deeper strategic ties with India.
In fact, it may reduce the room for aggressive negotiations from team Trump. Depending on the scale of the loss, Trump may find it harder to impose or sustain aggressive tariffs on trading partners. Congress, corporate lobbies and courts could exert greater influence. From the likes of Bharat Forge to KEI Industries, textile exporters like Gokaldas Exports and KPR Mills, as well as chemical makers like Navin Fluorine, may see a sentiment-driven pop in share prices.
However, if the Democrats decide to scrutinise the potential pact, there may be new challenges like questions on labour and environmental standards, data and digital trade rules, and human rights concerns, which can be used as leverage during trade talks.
Will the war in West Asia stop if Trump loses mid-term polls?
Second, a loss in the mid-term polls may mean Trump would find it difficult to fund the war in West Asia at the current scale. What's at stake is not just military funding but oil prices, and it could cut both ways.
Reduced US involvement could increase geopolitical uncertainty in the Gulf, potentially threatening energy supplies.
Conversely, if funding cuts push stakeholders toward a ceasefire, oil prices could decline sharply. That would be good news for energy companies like ONGC and Oil India, airlines like IndiGo, paint makers like Asian Paints and Pidilite, and the broader consumer basket, including carmakers, as oil prices cool off.
India remains one of the world's largest oil importers. A sharp fall in crude oil prices will help the fiscal deficit, the rupee exchange rate, as well as the valuation concerns that have led to a sustained sell-off by foreign portfolio investors.
While the energy risk may abate, a loss for the Republicans may lead to other challenges.
The biggest risk of a Republican loss in the mid-term polls is a US government shutdown
Third, a weaker Trump administration could face greater confrontation with Congress during annual budget negotiations, increasing the risk of government shutdowns.
Government shutdowns do not usually trigger recessions, but they create uncertainty around federal contracts, consumer confidence, data releases, and public spending, which would lead to global risk aversion among investors.
In the event of policy uncertainty in the US, investors typically seek safe-haven assets. If they seek out the US dollar more than gold, it could benefit jewellery makers like Titan.
On the contrary, rising US yields due to a standoff over the debt ceiling may lead to a broader sell-off in emerging markets as a whole, which includes India.
The debt ceiling affects the "risk-free asset" underlying the entire global financial system. Even a temporary scare can trigger sharp capital outflows from EMs and raise the cost of funds for finance companies, particularly shadow banks.
How will the US mid-term election results affect IT stocks?
The current AI boom rests on unprecedented spending by Microsoft, Amazon, Alphabet, Meta and others on data centres, chips and cloud infrastructure. If political uncertainty, recession concerns or fiscal tightening reduce confidence, corporate America could slow AI spending.
Immigration may be one area where a weakened Trump administration faces the greatest constraints. If Congress, courts, or state governments dilute the current restrictions on skilled-worker visas, the implications for Indian IT stocks like TCS, Infosys, HCLTech, and Wipro will be significant. Combined with the slowdown in AI spending, any relief on visas will be a double bonanza for India’s software services exports.
