Rs 13 lakh crore boom! Sensex rises by 3,500 points, Nifty rises by almost 5%. India-US trade deal is among the key factors behind the rally

Benchmark indices Nifty and Sensex rose 4.7% and 4.4% respectively, in one of the biggest single-day gains after India and the US announced a long-awaited trade deal, easing concerns over tariffs that have weighed on Indian markets for months. The benchmark BSE Sensex rose nearly 3,500 points, or 4.4%, to 85,323 in early trade, while the Nifty 50 rose 1,200 points, or 4.7%, to 26,308. The broader market also reflected robust trends, rising 3.4% each on Tuesday.

The rally added around Rs 13 lakh crore to investors’ pockets within 15 minutes of early trading, with the total market capitalization of BSE-listed companies rising to Rs 468.32 lakh crore.

Here’s what’s behind the huge rally:

India-US Trade Agreement

After months of negotiations, India and the US signed a trade deal after US President Donald Trump said the US would cut reciprocal tariffs on India to 18%, a sharp drop from the previous 50%, while India would also take steps to reduce tariffs and non-tariff barriers on US goods to zero. For Indian markets, the deal removes a major overhang that had kept foreign investors on the sidelines and dragged stocks into a phase of prolonged underperformance. The markets struggled through January, with the Nifty losing over 1,000 points at its worst even as foreign portfolio investors shed billions of dollars worth of equities.

The strength of the rupee provides support

A firmer rupee contributed to the stabilizing tone of domestic assets, easing some of the pressure from volatility in global markets. The Indian currency opened at 90.40 against the previous one. Experts say the rupee will appreciate strongly and the combination of the US-India trade deal, the EU-India trade deal and the growth-oriented budget will boost market sentiment and animal spirit in the economy.

FII short coverage

FII short covering emerged as a key driver of Tuesday’s sharp market recovery. Technical factors amplified this move as traders rushed to cover short positions estimated at nearly 90%. In today’s session, Nifty recovered from the oversold territory and regained the 26,000 level. Commenting on the setup, Anand James, chief market strategist at Geojit Investments, said Tuesday’s decisive close above 25,000 has put the 25,800 target in play, with the possibility of an extension towards 26,200. However, he warned that if it fails to sustain above 25,800, the Nifty could consolidate in the 25,430-25,340 zone.

Heavyweights lead the rally

Heavyweights drove the rally, with frontline stocks leading the way. Mukesh Ambani’s Reliance Industries rose nearly 4%, while Adani Ports rose 8%, providing strong momentum for the benchmarks. HDFC Bank, L&T, Bajaj Finance, Eternal, ICICI Bank and Infosys echoed the positive sentiment and rose as much as 5%. The rally was further underpinned by investments in the Union Budget 2026, which boosted expectations of stronger order inflows and improved earnings visibility across sectors.

Positive global signals

The 30-stock Dow Jones rose about 515 points, or 1.05%. The S&P 500 rose 0.5%, and the tech-heavy Nasdaq Composite gained nearly 0.6%, starting the new month on a strong footing. Following the trade deal, Asian markets rose on Tuesday, led by Japan and South Korea. Japan’s Nikkei 225 rose as much as 3%, while the Topix gained 2.34%, while South Korea’s Kospi rose more than 5%. In Greater China, Hong Kong’s Hang Seng Index rose 0.48%, while the mainland’s CSI 300 added 0.75%.

Australia’s S&P/ASX 200 rose 1.3% after the Reserve Bank of Australia raised the policy rate by 25 basis points to 3.85%, marking the first gain since November 2023 amid persistent inflationary pressures.