Markets can crack another 5% in case of Trump win: Analysts

The S&P BSE Sensex tanked over 1600 points in early trade. It regained some of the lost ground as trade progressed

Markets witnessed a knee-jerk reaction on Wednesday with the S&P BSE Sensex cracking over 1500 points in early deals, as projections showed a Donald Trump victory in the US Presidential polls. Adding to the negative sentiment was the government’s move to clamp down on black money by withdrawing Rs 500 and Rs 1000 rupee notes from circulation with immediate effect.

Global markets, too, were rattled by the prospects of a Trump presidency. In Asia, Nikkei 225, Hang Seng, Taiwan Weighted, KOSPI and the Shanghai Composite were trading 1.3 – 4.3% lower.

Back home, Infosys, Sun Pharma, Wipro, United Spirits, Reliance Power, Idea Cellular and Bata India were among the 56 stocks from S&P BSE 500 index hit their respective 52-week lows after the Sensex tanked nearly 1,700 points in intra-day deals.

The S&P BSE Sensex hit a low of 25,902, down 6.12% or 1,689 points in intra-day trade. It recorded hits sharpest intra-day fall since August 24, 2015, when the index tanked 6.4% or 1,741 points.

Given the developments, analysts caution against volatility in the weeks ahead and suggest investors remain on the side-lines.

“Donald Trump’s victory will clearly be a black swan event. The markets were not expecting this outcome at all. While the move by the Government of India (GoI) was a positive from a long-term perspective, it will be a near-term negative in terms of its impact on transactional banking. With possible Trump presidency, the global overhang overshadows what happens in India. I expect the US markets to drop 2 – 2.5%. It would not be surprising that Indian markets drop 5 – 7% over the next one week given these developments,” says Tirthankar Patnaik, India Strategist at Japan-based Mizuho Bank.

“This is not a good time to invest, unless there are good quality stocks that are available at compelling valuations. I suggest investors stay away from the markets. There is a lot of uncertainty in the markets, and I expect a flight of capital in case of a Trump win. I do not expect a rate hike by the US Federal Reserve (US Fed) in December now,” he adds.

U R Bhat, managing director at Dalton Capital Advisors, also expects the markets to witness some more downside in case of a Trump presidency.

“What we saw in early trade today was a knee-jerk reaction, and I do not think these are significant things that can hurt the Indian economy in the medium-to-long term. The clampdown on black money is a big positive and the government will have a better tax collection going ahead. Having said that, it is the short-term pain that is getting reflected in the market volatility. The Nifty 50 index can go down another 200 points from here on in case of a Trump victory,” Bhat says.