Sensex jumps over 2,000 points after Trump's Republicans lose US midterms; Nifty ends at 24,536

Political developments in the United States are now showing a direct effect on major economies and on India's stock market. President Donald Trump's Republican Party suffered a heavy defeat in the US midterm elections. Global markets and Indian equities then rallied sharply, with the Sensex gaining more than 2,000 points in a single session.

A midterm election is held midway through a president's term. A US president serves four years, while members of Congress are elected every two years. Voters use the midterms to give their verdict on the previous two years' performance.

The Democrats have won control of both houses of Congress, the Senate and the House of Representatives. The results showed that American voters were unhappy with the Trump administration over the ongoing conflict with Iran, rising military spending and inflation.

With the Democrats' stronger hold on Congress, taking decisions on war and military policy is no longer as easy for Trump as before. Congress is now expected to keep a close watch on military spending and administration policies. Investors believe the mounting political pressure in the US will help ease tension in the Middle East. There is a strong possibility that steps could be taken towards ending the conflict with Iran. These expectations lifted sentiment in global markets and led to heavy buying in India as well.

Crude oil prices are not set by demand and supply alone; political tension and the prospect of war also weigh heavily on them. The conflict involving Iran and West Asia had raised fears of disruption to oil shipments through the Strait of Hormuz, a route vital to the world's oil and gas trade. Those fears had pushed oil prices up. As the election raised the prospect of an early end to the war or a easing of tension, crude fell. Brent crude dropped below $90 a barrel, bringing relief to countries such as India.

The rally came after several consecutive days of decline. The BSE Sensex jumped more than 2,000 points to close at 79,310. The NSE Nifty surged 576 points to settle at 24,536. The market capitalisation of companies listed on the BSE rose by more than Rs 7 lakh crore. The Indian stock market is now moving steadily towards the $5 trillion club. Foreign portfolio investors (FPIs) have continued buying, and they are reported to have put about Rs 25,000 crore into Indian equities within a few days.

As for the effect on the common man, India imports 88.7 per cent of the crude oil it needs, and pays for it in dollars in the international market. Cheaper oil will reduce the import bill, which should help improve foreign exchange reserves and the current account deficit. Demand for the dollar may ease somewhat, which has strengthened the rupee, and it has reached a two-week high.

Whether petrol and diesel will become cheaper is the big question on everyone's mind. Even when crude gets cheaper in the international market, fuel prices in India do not fall immediately. They depend on the rupee-dollar exchange rate, refining costs, transport and the various taxes levied by the Centre and the states. Companies and the government can decide on a price cut only if oil stays cheap in the international market for a long time. If diesel and petrol become cheaper or stay steady, freight and farming costs come down. This helps ease inflationary pressure on prices of vegetables, foodgrains and everyday goods.

The hope that tension in West Asia will subside and oil will get cheaper is seen as highly positive for a developing economy like India. However, whether this is only initial enthusiasm or a long-term change will depend on geopolitical developments in the coming period.