Street storm in India after blue wave in US

Mumbai: Falling crude oil prices could give Indian equities a much-needed boost, easing pressure on the country's external finances and improving the outlook for corporate earnings. A series of stunning wins by Democrats in the US midterm elections, giving them control of both chambers of Congress, has raised hopes that political constraints on President Donald Trump could lead to a de-escalation in the US-Iran conflict.

But cheaper oil may not be enough to draw foreign investors back to India in a big way. Global capital continues to favour artificial intelligence (AI)-related investments, and the US political shift is unlikely to disrupt the investment cycle or the strength of Asia's semiconductor supply chain.

To be sure, the new Congress is scheduled to convene only in January 2027.

India's benchmark indices rallied after the election outcome, with the Nifty 50 gaining 2.42% and the Sensex rising 2.62% as of 0145pm on Thursday.

A reduction in the intensity of the West Asia conflict, potentially driven by funding constraints facing the Republicans, could bring down oil prices, said Alok Singh, chief investment officer at Bank of India Investment Managers.

“The man behind all the volatility due to his intemperate actions is still there so we will have to see what pans out. But, if crude declines sharply that will have a positive impact on earnings,” said Vijay Kedia, an investor.

Brent crude futures plunged nearly 9% overnight, falling below $100 a barrel. Prices have declined about 14% so far this week, according to Bloomberg. The benchmark traded at $95.19 a barrel as of 0145pm India time on Thursday.

Experts expect prices to cool further, although the decline could be gradual, with crude likely to remain volatile amid possible near-term policy shifts.

"Assuming we have enduring peace in West Asia, crude could gradually fall to below pre-war levels of $72-73 a barrel. That's great news for not only India's macros, but micros too,” said Sanjeev Prasad, managing director and co-head, Kotak Institutional Equities.

Lower oil prices could also improve India's current account deficit (CAD), given the country's dependence on imports to meet its energy needs.

“This is a clear macro positive for India, where the oil import bill is up by around 24% in the financial year so far and with Brent averaging at around $97 per barrel,” said Madhavi Arora, lead economist at Emkay Global Financial Services Ltd.

Emkay Global estimates India's CAD at 1.7% of GDP in fiscal year 2027 (FY27) if Brent averages $100 a barrel, and 1.4% if it averages $90 a barrel, said Arora.

The AI trade remains resilient

India has been losing out as emerging-market investors reallocate funds towards AI-related opportunities. However, experts say the US midterm election outcome is more of a sentiment shock for AI stocks than a threat to capital expenditure.

Arora expects AI capital expenditure growth to slow in 2027, largely because the investment base is already substantial, rather than because of political developments. Any new legislation restricting AI would also require President Donald Trump's signature, while hyperscalers can largely fund their AI investments through their own balance sheets.

"To that extent, the AI trade and EM Asia’s semiconductor supply chain stay supported," Arora said, adding that an FPI rotation into India as a hedge against AI exposure has limited merit for now.

Foreign flows return

The easing of crude prices, the possibility of an India-US trade deal, and constraints on US government spending could help reduce uncertainty in global markets, said Dhananjay Sinha, chief executive and co-head of equities and head of research at Systematix Group.

“This could reduce the risk premium investors demand to hold Indian equities, providing some support to market valuations,” Sinha added.

Foreign portfolio investors (FPIs), who have begun buying Indian equities since 30 October, have also been covering their bearish bets on index futures, including Nifty and Bank Nifty contracts. The Nifty has gained around 10% from its 52-week low of 22,179.9 to reach 24,442.20 on Thursday.

FPIs' cumulative net short position in index futures declined from 307,109 contracts on 8 October to 185,979 contracts as of 4 November.

The improving sentiment comes as investors assess whether corporate earnings can sustain a broader market recovery. The Nifty 50 is currently trading at a trailing price-to-earnings (P/E) multiple of 19.77x.

Among Nifty 50 companies that have announced their Q2FY27 results so far, net profit has increased 5.3% quarter-on-quarter (QoQ). While net sales have grown 6.3% on sequentially.

Kotak Institutional Equities' Prasad expects earnings for the brokerage's coverage universe to grow 12-14% this fiscal year, up from 8% in FY26. If valuations expand by one multiple point, the Nifty could rally 15% from current levels over the next year, he said.

Where will new money flow?

The political shift in the US could also bring greater scrutiny of deals negotiated by Trump over the past couple of years, potentially creating uncertainty around some prominent Indian business houses, experts said.

Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers, said markets are likely to be wary of potential investigations into these deals.

“However, the possibility of the government scrapping long-term capital gains tax for FIIs will bring back some flows into India. And these flows are likely to favour clean, well-run, high-quality companies that have no exposure to deals that could come under scrutiny. So high-quality businesses with strong governance could attract greater foreign investor interest,” Mukherjea said.

Swarup Mohanty, chief executive officer at Mirae Asset Mutual Fund (India), said the risk-reward clearly favours large caps after a two-year consolidation led by time and price correction.

“I am fully invested and am bullish on financials, consumer discretionary and healthcare,” he added.

With inputs from Ram Sahgal