“The uncertainty over tariffs was one of the many reasons for India’s widening trade gap, underperformance of equity markets, $19 billion in sales by foreign investors by 2025 and a weakening currency,” said Ashish Gupta, chief investment officer of Axis Mutual Fund. “The new framework removes a major source of uncertainty around growth prospects, supports external demand, improves business sentiment and potentially catalyzes a rebound in private investment.”
The rupee, which had the dubious distinction of being Asia’s worst performer in 2025, rose 125 paise to 90.26 per dollar from 91.51 on Tuesday. The logical advance above 90, dealers said, was only stopped by the central bank’s decision to buy the US currency, which it had previously ruthlessly sold from its stock to prevent the defeat of the local unit.
Trade anxiety is decreasing
“Capital flows could improve as the deal improves overall sentiment,” said Shailendra Jhingan, head of finance at ICICI Bank. “Foreign capital, which has been sidelined in recent months, may begin to return, leading to inflows into both equity and debt markets.”
He expects the rupee, whose value against the dollar has a disproportionate impact on foreign capital flows into Mumbai-listed growth assets, to trade between 90 and 89.50 per dollar by the end of March.
India’s volatility index VIX – the stock market’s fear gauge – fell 7% to 12.90, reflecting a thaw in traders’ fears. Analysts said the index could challenge its all-time high of 26,373.2 in the near term.
Deeper, stronger
“The Nifty has been trading in a wide range of nearly 1,500 points for most of May so far, and post the trade deal announcement, we may see this range shifting upwards, with a potential for Nifty to move towards 26,650 levels on improving sentiment in the coming weeks,” said Rohit Srivastava, founder of indiacharts.com.
Foreign portfolio investors were net buyers of ₹5,236 crore on Tuesday, while domestic institutions bought shares worth ₹1,014 crore. So far this year, foreign investors have made net sales of nearly ₹28,180 crore.
BNP Paribas Securities said the trade deal supports the positive outlook for Indian equities this year. It expects a return of foreign flows to benefit IT and financial stocks.
Markets across Asia rose on Tuesday, recouping some of the recent losses. Japan gained 3.9%, China 1.3%, Hong Kong 0.2%, South Korea 6.8% and Taiwan 1.8%. In Europe, the Stoxx 600 was up 0.1% at press time.
Domestically, the broader market also ended strongly, with the Nifty Mid-cap 150 and the Nifty Smallcap 250 rising over 2.9% each. Of the total 4,422 shares traded on the BSE, 3,279 advanced and 1,015 declined.
Harendra Kumar, managing director of Elara Securities, said the deal strengthens India’s macroeconomic structure in the long term. “With the tariff overhang behind us, India’s longer-term growth prospects have improved, with GDP potentially growing 8-8.5% from FY28 to FY2029,” Kumar said. “This should support higher valuation multiples for Indian markets and, in addition to a weaker rupee, improve India’s attractiveness to financial institutions.”
Kumar expects the Nifty to touch 30,000 by March 2027.
Gupta said the tone for equities has turned more favorable after a weak start to 2026. He said conditions are improving on better valuations, stronger earnings expectations, stronger post-Budget economic momentum and steady domestic flows. “With rate uncertainties resolved, near-term risk-reward ratios have shifted in favor of equities, and these factors together are expected to significantly strengthen India’s growth prospects for FY27,” he said.
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