“The United States will impose a reduced reciprocal tariff, from 25% to 18%. They (India) will also take steps to reduce their tariffs and non-tariff barriers against the US to zero,” Trump said.The uncertainty surrounding the trade agreement has been the biggest dampener for the Indian stock markets for some time. In January, Nifty fell more than 1,000 points, and foreign portfolio investors had sold about $4 billion worth of Indian equities this year. Expectations for the deal had been priced in since September last year, but the delay hurt investor sentiment.
Indian markets were dubbed the world’s worst performing in 2025 despite offering high single-digit returns as foreign investors sold heavily to the tune of $18 billion. Coupled with high rates, the continued depreciation of the rupee was the biggest contributor to this underperformance.
Analysts had repeatedly pointed out that any progress on the US trade deal would be positive for Indian equities, which is reflected in the current rally of Gift Nifty.
On Monday, Indian shares recovered sharply from the Budget Day crash to end higher, recouping some of the losses, with the Nifty closing around 25,100. With both sides close to resolving tariff-related issues, a more flexible trade framework could boost export-oriented and globally connected sectors. Among the biggest beneficiaries are textile and fishing stocks, which have come under significant pressure from the tariffs.
“The India-US trade deal has gone through ups and downs like a roller coaster. While the devil is in the details, it removes a hanging sword over the rupee, equity and interest rate markets. Let’s hope it is a win-win deal for both the countries as they have a lot to gain through cooperation,” said Nilesh Shah, MD, Kotak Mahindra AMC.
“A reversal of the recent correction is highly dependent on arresting the rupee’s weakness. The recent crash in gold prices is good news in that regard – as is an early completion of the India-US trade deal,” Seshadri Sen, Head of Research and Strategies at Emkay Global Financial Services, had said earlier.
Technically, analysts say immediate resistance is at around 25,210 on the 200-DMA, and a decisive move above this level would confirm a near-term trend reversal.
“On the other hand, immediate support is seen at 24,800, followed by 24,680. The RSI has returned from the oversold territory and is trending higher, indicating improving momentum. Meanwhile, the India VIX cooled sharply by 9% to close around 13.8, a further decline would provide comfort to the bulls. Overall, the structure seems constructive for a further move towards the 25,200 zone,” says Nilesh Jain, chief technical officer. and derivatives research analyst (equity research), Centrum Broking.
“The reduction in tariffs from ~50% to ~18% has significantly exceeded consensus expectations. Combined with the recently concluded trade deal between India and the EU, this potentially represents one of the strongest external growth drivers for the Indian economy in 2026,” said Trideep Bhattacharya President and CIO Equities Edelweiss MF.
Will the deal lead to a return of FPIs?
Foreign investors remained cautious towards Indian markets in 2026, as they were in 2025, mainly due to macro headwinds rather than domestic weaknesses. Elevated global interest rates, especially in the US, continue to drive capital flows towards developed markets as lower risk returns remain attractive.
Continued uncertainty about the pace of the Fed’s monetary easing, in addition to persistent inflation in advanced economies, has reduced risk appetite for emerging markets. Geopolitical tensions, fragile global growth and commodity price volatility have kept FPIs on the defensive.
“A stronger USD and higher US bond yields have also tightened global liquidity, reducing the appeal of carry trades. Despite India’s resilient GDP growth, improving corporate earnings and steady inflows from domestic institutional investors (DII), these factors have led FPIs to look elsewhere,” said Ross Maxwell, Global Strategy Operations Lead at VT Markets.
“A reversal in foreign flows would require a combination of global and domestic factors to change. Clear guidance from the Fed towards sustained rate cuts would narrow yield differentials and weaken the USD, making emerging markets more attractive. Improvements in global growth prospects and a reduction in volatility would reduce risk aversion and this could lead FPIs to move into emerging markets and India in particular, given strong domestic performance,” Maxwell had said earlier.
Sonam Srivastava, founder and fund manager at Wright Research PMS, said the reduction in rates is a meaningful positive for Indian equities, both from a sentiment and earnings visibility perspective. “The sharp rise of around 600 points in GIFT Nifty reflects an immediate repricing of risk, driven by expectations of improved trade competitiveness, lower input costs for exporters and stronger bilateral economic alignment between the two countries.”
“From a sectoral perspective, export-oriented segments such as IT services, pharmaceuticals, specialty chemicals, auto parts and select engineering goods will benefit the most. Lower tariff barriers improve price competitiveness of Indian companies in the US market, which remains India’s largest export destination. Over time, this could translate into better order inflows, margin stability and higher capacity utilization. Domestic manufacturing themes related to global supply chain diversification are also strengthened,” it said. Srivastava.
“At a macro level, the agreement signals strategic continuity in India’s trade policy and strengthens India’s positioning as a partner of choice amid ongoing global trade realignments. While market reaction is understandably sharp in the short term, sustainability will depend on execution, sector-specific adoption and whether earnings improvements follow. Still, as a signal, this is a clear risk driver,” Srivastava said.
“India and the US have finally signed the trade deal and that is great news for India,” said Shashank Udupa, fund manager at Smallcase. “India has always been very clear that we will not compromise our dairy and agricultural sectors. PM MODI has defended that position and ultimately we had to come to an agreement with the US on buying energy from them worth $500 billion, where India will now start buying oil and coal and some agricultural products. If we have a deal today at such low rates that are cheaper than many of our Asian counterparts, it will certainly increase the profits of our company. In fact, we have two great trade deals signed in the space of two months – with the US and EU India is on its way to becoming a first manufacturing country and these two deals strengthen that future for us.
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