U.S. Election Outcome To Decide Market Direction

The Indian markets may open with indecisiveness on the directional trend. However, some time into trading will mark a clear indication on the outcome of the U.S. presidential elections, thereby giving a more definite sense to the trading direction for the rest of the day. The global equities were strong yesterday and have been polarised today. A movement in equities worldwide has been vacillating over the uncertainty caused due to the elections. It stands true that no drastic changes would pan out in the short run regardless of which candidate takes seat. However, issues like the fiscal cliff and the execution of QE3 would take shape depending on the outcome.

Since investors worldwide have been eyeing this event closely, the markets are likely to follow the global sentiment. Moreover, on the lack of major domestic drivers, the markets are also likely to concentrate on corporate earnings. Bharti Airtel, Cadila Healthcare, Emami, Gulf Oil Corporation, Indraprastha Gas, Kingfisher Airlines, Nitco, NMDC and Tata Motors are among the major companies to announce their Q2FY13 results. Investors would be keeping an eye on this as well.

On the domestic front, yesterday trading was rather pivoted for most of the day but since the global equities seemed to grab a stronghold with the rallying Asian and European stocks, the Indian markets gained some steadiness. With this the Sensex ended the day higher by 54.51 points at 18,817.38, up by 0.29 per cent and the Nifty ended the day higher by 20.20 points at 5,724.40, up by 0.35 per cent.

The U.S. markets surged as the presidential election results started to drip in showing Mitt Romney ahead of President Barack Obama, with early state-wise calls being in line with expectations. Investors in the U.S. have been increasingly concerned over the USD 600 billion in tax raises and spending cuts to take effect next year if the Congress fails to reach an agreement. Tuesday’s elections are not going to resolve these concerns. However, the future of Ben Bernanke sticking to his position of Federal Reserve’s chairman comes into question. Romney’s victory would steepen the probability of Bernanke having to step down and be replaced, also putting into question the probability of the execution of QE3.

With revolving uncertainty and a low volume session, the U.S. indices gained in the range of 0.41 per cent and 1.02 per cent. Europe too inched upwards on the day of U.S. elections with the FTSE, DAX and CAC rising by 0.79 per cent, 0.70 per cent and 0.88 per cent respectively. The Asian stocks however erased early gains and are now trading flat to negative with the Nikkei up by 0.03 per cent and the Hang Seng and Shanghai Composite down by 0.17 per cent and 0.28 per cent respectively. These elections have truly marked the polarised directionless movement across the globe caused due to increased uncertainty till the outcome is out.

Along with a rise in the Indian equity markets was a rise in rupee, oil and gold. The rupee recovered from its month and a half low due to corporate dollar sales and due to gains on the bourses. Crude has been on a rise on the back of forecasts indicating a drop in the American gasoline supplies caused by a shutdown in East Coast refineries due to Hurricane Sandy. And gold, which lost about 2 per cent on Friday due to the U.S. jobs data lifting the dollar, saw some gains although it’s trading near a nine-week low.

On the equity front, the markets are likely to track the global equities today and take firm direction on the election outcome announcement. European opening is also likely to shape markets as key data on Spanish industrial production, Swiss CPI, Euro zone retail sales and German industrial production is scheduled to be announced. Moreover, the focus is going to be corporate earnings domestically.