Stock Markets Brace for Impact: US Election, Fed Decision, and Earnings Reports Set the Stage

Uncover the major events expected to drive stock market trends this week, including the US presidential election, Q2 earnings reports, and the Federal Reserve’s policy decisions.

The Indian equity market closed last week with a 0.5% gain, supported by growth in banking, financial, and metal stocks. As markets open on Monday, several global and domestic factors—such as Q2 earnings announcements, political developments in the US, and international market trends—are expected to shape investor sentiment. The recent Diwali “muhurat” trading session saw the Nifty 50 and BSE Sensex both rise by about 0.4%, bolstered by strong sales data in the auto sector. Positive festive sentiment, steady institutional inflows, and falling oil prices helped strengthen market indicators, while easing geopolitical tensions and improved India-China relations further lifted market morale.

Anticipation for Q2 Earnings

Investors will be closely tracking Q2FY25 earnings reports from companies such as Titan, Power Grid Corporation, Tata Steel, Lupin, Mahindra & Mahindra, Trent, LIC, Tata Motors, Asian Paints, Divi’s Laboratories, and SBI. Analysts predict a mix of outcomes, with some sectors likely to perform well while others may encounter headwinds. Market responses will largely hinge on how earnings results align with broader economic indicators and investor expectations.

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Impact of the US Presidential Election

The upcoming US presidential election on November 5, featuring a tight race between Democratic candidate Kamala Harris and Republican contender Donald Trump, could bring economic shifts that impact India. Analysts speculate that a Harris win may lead to a more accommodative approach from the US Federal Reserve, potentially influencing the Reserve Bank of India (RBI) to consider lowering rates. Such a move could benefit India’s non-banking financial companies (NBFCs) by reducing funding costs and spurring loan demand. Conversely, a Trump victory might result in continued high US interest rates, pressuring the RBI to maintain current levels and delaying any rate cuts. This scenario could give public sector banks (PSBs) an advantage over NBFCs in India.

Expectations from the Federal Reserve Meeting

Following the election, the US Federal Reserve’s policy meeting on November 7 is anticipated to have a substantial impact on Indian equity markets. If the Fed opts for a rate cut, the RBI may consider rate adjustments, which could boost investor sentiment in India. Market experts expect the Fed might implement a quarter-point rate reduction, likely driving increased foreign investment into Indian markets and supporting overall performance.

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October Auto Sales Insights

The recent October auto sales data offers valuable insights into consumer demand during the festive season. Maruti Suzuki reported record sales of 206,434 units, marking a 4% year-over-year increase. Mahindra & Mahindra and Hyundai also posted strong numbers, indicating continued strength in the auto sector, though Tata Motors reported a decline. This robust domestic demand is expected to positively impact auto stocks this week.

Foreign Institutional Investor (FII) Activity

Foreign portfolio investors (FPIs) registered a significant outflow of ₹1,13,858 crore from Indian secondary markets in October, adding to recent market fluctuations. However, FPIs invested ₹19,842 crore in the primary market, attracted by more reasonable valuations. High valuations in the secondary market have led FPIs to shift focus toward primary market investments. Continued selling pressure in secondary markets may slow upward momentum in Indian equities.

Global Market Trends

On Friday, global markets showed gains, with Amazon’s strong quarterly performance and investor caution ahead of the US election contributing to the rally. The Dow gained 0.69%, the S&P 500 climbed 0.41%, and the Nasdaq rose 0.80%. In Europe, the STOXX 600 index increased by 1.09%, largely driven by gains in the banking sector. Positive global market sentiment often boosts Indian equities, especially through foreign investments.

Crude Oil Price Fluctuations

Crude oil prices continued to rise, driven by ongoing geopolitical concerns in the Middle East. Reports of Iran’s potential retaliation against Israel contributed to fluctuations, with Brent futures closing at $73.10 a barrel and US West Texas Intermediate (WTI) at $69.49. These geopolitical tensions, especially with unrest in Gaza, are likely to keep oil prices volatile. Rising oil prices typically influence Indian markets, given India’s reliance on oil imports.

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U.S. Treasury Yields and Emerging Market Impact

U.S. Treasury yields saw an increase after a modest jobs report for October, with benchmark 10-year yields reaching 4.36%. Higher yields attract capital flows to the U.S., which may result in outflows from emerging markets like India. However, if U.S. economic data suggests stability, Indian equities could experience moderate foreign investor interest.

Conclusion

This week, a convergence of global and domestic factors ranging from the U.S. election outcome and the Fed’s rate decision to Q2 earnings and FII trends will shape market movements. Investors should closely monitor these developments to gauge potential market reactions and adjust their portfolios accordingly.