Markets Post US Elections: How To Prioritize Quality Investments During A Volatile Period?

The election in the world's largest economy - the US - concluded in the first week of November. As expected by many political experts, Republican candidate Donald Trump reported an easy win over his Democratic counterpart Kamala Harris. The conclusion of this event eliminated the near-term uncertainty of the same and paved the way for the policies and decisions of the new President.

However, these policies/decisions may bring some notable changes in the global economic scenario, including the US. Taking cues from his last stint, we expect Trump to continue with his protective theme and focus more on traditional energy sources than renewable ones. These factors may help the USD strengthen against other currencies and may result in lower crude oil prices.

Given this backdrop in the global scenario, the China +1 factor and lower crude prices will be beneficial for the Indian macroeconomic environment. Apart from that, we believe that the markets will continue to take cues from quarterly earnings and long-term prospects of the Indian economy. One shall continue to focus on companies with good fundamentals and healthy earnings.

As the market continues to provide such opportunities along with reasonable valuations, these pockets can be addressed as investment opportunities. While the earnings growth is not that encouraging in the current quarter, an improvement in the near to medium term is likely to be there. In such a market scenario, where valuations are prevailing on the higher side, a near-term price or time correction in the markets can not be ruled out. As a result, valuations may play an even more critical role.

Furthermore, Trump's return as the president of the US could benefit companies exporting to the US and dealing in products, which could be alternatives to higher tariffs on Chinese ones. The new president's policies, apart from tightening on the VISA side, will also be largely supportive of the Indian IT and Pharma sectors, in our view. On a Sectoral basis, apart from IT and Pharma, FMCG, OMCs, and Paints companies can also take advantage of sustainably stable/low crude prices. On the flip side, companies operating in renewable energy and having import dependence may face some headwinds.

On the domestic front, following its global counterparts, RBI may ease its stance and - subject to inflation readings - may lower rates starting February policy. This can support the performance of banks and financial institutions and provide a boost to economic growth, leading to traction in economy-facing sectors. In addition, festive cheer in Q3 FY25, led by a notable improvement in retail sales between Dussehra and Diwali, might lead to a healthy quarterly performance by consumer-centric companies. As a result, we expect these sectors to perform well in the near term.

Overall, we believe that the long-term growth prospects of the market remain healthy and near-term price/time correction in the market is anticipated to provide opportunities to invest. Consequently, investment in quality companies with reasonable valuations, good management, and strong future prospects is to be considered while choosing such stocks. In addition, sector rotation and moving towards safer sectors, in our view, might be a prudent strategy in the near term.