What is Georgia and Why Should I Care?
Control of the US Senate is dependent on two Senate elections on January 5 in Georgia. The Republicans now have a 52-48 majority and a loss in both seats will hand control over to Democrats as vice-president Kamala Harris as the Senate’s presiding officer will have the casting vote in case of a tie. Investors expect massive spending with the Senate in Democrat hands with interest rates and inflation expected to rise.
Inflation yes, but what on Earth is reflation?
A reflation trade includes purchase of growth stocks, industrial commodities gold and other assets also as a hedge against inflation. Investors dump existing bonds to buy new ones at higher rates causing a bond market sell-off
Ok, Why Will It Affect India?
Indian markets are hugely dependent on foreign flows. A rising dollar or higher rates in the US will suck out some of the flows.
Didn’t the Fed say it will not hike rates…
Yes, the Fed will keep rates low and even allow inflation to overshoot till the economy and the job markets recover
So, Net-Net, What’s the Deal for Indian Markets?
FPIs will keep buying, because the India story is getting some mojo back. If Republicans win even one seat, they will keep the Senate, and markets will not be too worried. Even if Democrats win, this will take some time to play out.
Are there other factors that will affect Indian markets in 2021?
Of course. Indian economy’s performance, earnings growth will matter. The budget on February 1 will set the tone for much of the first half