From US elections to Middle East conflict — 4 global headwinds Indian stock markets face in near term | Stock Market News

Indian markets have lost almost 5 per cent in October so far after four straight months of gains. This is the steepest monthly decline for the Indian markets since March 2020. Geopolitical tensions have been one of the key reasons behind this month’s fall.

Domestic brokerage house Emkay recently hosted Ashok Malik, Partner and India Chair at The Asia Group, for a conference call discussing India’s geopolitical challenges. Malik highlighted that despite global turmoil, India’s diplomacy has remained largely unaffected so far. However, there are key issues on the horizon, particularly the evolving Middle East conflict and the upcoming U.S. presidential election, which may test India’s diplomatic resilience.

Middle East Crisis: A Potentially Tricky Path for India

Malik told Emkay that India’s approach to the Middle East crisis has been carefully balanced so far, but warned that the situation could become more complex. He predicted that an Israeli attack on Iran may be imminent, which could significantly alter the region’s dynamics. If Israel successfully weakens Iran and achieves its goals, India may not experience much fallout. However, if the conflict spreads further, India could face significant challenges, particularly in terms of energy security and trade relationships with the region, Malik explained. Moreover, India might be forced into a difficult position of choosing sides, especially as its Global South allies grow restless. While Malik believes a broader conflict is unlikely, he noted that widespread grassroots discontent in the region could potentially trigger more instability, he added.

US Presidential Elections: A Divergent Set of Challenges

As per the brokerage, the upcoming U.S. presidential election poses divergent challenges for India, depending on the victor. Malik outlined two potential scenarios: a presidency under Kamala Harris, should she run, would likely mean continuity of the Biden administration’s strategic partnership with India, albeit with some challenges. Harris remains an unknown quantity in global politics, but Malik emphasised that the long-term relationship between the two nations would likely remain intact. However, short-term challenges, including diplomatic tensions following incidents involving Khalistani extremists, could emerge.

On the other hand, a Donald Trump presidency would present different challenges. While Trump’s focus would largely be on China, India could also face tariffs and trade issues. Additionally, the unpredictability of Trump’s domestic policy could affect U.S.-India relations, making it a tricky period for India either way, he added.

India-China Relations: Positive but Cautious Progress

According to Emkay, Malik noted that there have been signs of thawing tensions between India and China, especially regarding recent patrolling arrangements in regions like Depsang and Demchok. However, Malik cautioned that the long-term disentanglement of India and China’s economies seems inevitable, despite the current de-escalation. India will likely continue to reduce its reliance on China for critical sectors like electric vehicles and semiconductors. Nevertheless, in areas such as intermediate goods and commodities, a more cooperative approach may be necessary to support India’s manufacturing ambitions. Malik also noted that combating Chinese dumping, particularly in commodities, will be an ongoing challenge for India.

Bangladesh: A Relationship of Mutual Dependency

India’s relationship with Bangladesh, though mutually beneficial, faces uncertainty due to Bangladesh’s domestic political landscape. Malik emphasised that while close economic ties between the two nations would be the logical outcome, the lack of clarity regarding Bangladesh’s political future is a concern. Until a more stable government is elected, bilateral relations may remain in flux. Additionally, even after political stability is achieved, the new government may need time to normalise relations with India, despite the clear economic advantages of doing so.

India’s geopolitical landscape is entering a delicate phase, with potential challenges stemming from the Middle East, U.S. elections, and China. Ashok Malik’s insights suggest that while India has so far navigated global disruptions skillfully, the country’s diplomacy and strategic relationships will be tested in the near future. Key developments in energy security, trade relationships, and political alignments could significantly shape India’s geopolitical strategy in the coming years.

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