New Delhi [India], November 1 (ANI): India's financial markets may continue to face pressure from elevated crude oil prices and geopolitical uncertainty even after the US midterm elections, as a possible Democratic victory is unlikely to significantly constrain President Donald Trump's foreign policy decisions, according to a research report by Emkay Global Financial Services.

The brokerage said a renewed escalation in the Iran conflict after the November 3 elections could push oil prices higher, putting pressure on India's balance of payments (BOP), foreign exchange market and equities.

'We contend that oil prices are unlikely to decline after the midterms,' Emkay said, adding that the possibility of a fresh US strike on Iran could trigger a sharp increase in crude prices.

The brokerage said the implications of the elections for India are likely to be 'more geopolitical than directly market-related', with the dollar, US bond yields, global risk appetite and crude oil remaining the key variables for domestic markets.

On the political front, Emkay expects Democrats to win control of the House of Representatives, while their chances of securing a Senate majority have also improved. The report estimates a 60 per cent probability of Democrats winning both chambers, a 30 per cent chance of Democrats controlling the House while Republicans retain the Senate, and a 10 per cent possibility of Republicans retaining control of both chambers.

A Democratic-controlled Congress could increase scrutiny of Trump's tariff and immigration policies. However, the report said tariffs would remain 'largely unaffected', as the President retains considerable executive authority over trade and foreign policy.

Emkay also cautioned against assuming that political gridlock would automatically trigger a sustained rally in US equities. While the S&P 500 has historically gained around 6 per cent in the 60 trading days following midterm elections, current conditions are less favourable, with equities already up around 12 per cent over six months, US bond yields higher and Brent crude up around 61 per cent.

For India, the brokerage said a decline in the dollar, US yields and crude oil would support domestic assets. However, it warned that 'a peace dividend is not imminent', suggesting that any post-election optimism in Indian markets could prove short-lived.

The brokerage added that closer US-India strategic cooperation in defence, technology and relations concerning China is likely to remain resilient, given bipartisan support for the broader relationship. (ANI)