India-US trade deal: Why it's good news for Sensex, Nifty and the rupee
The India–US trade deal lifts a long-standing weight off investors' shoulders, giving the Sensex, Nifty and the rupee a cleaner runway. With clarity finally restored, the market's next leg higher suddenly looks more believable.
Benchmark stock market indices roared back to life on Tuesday after India and the United States finally sealed a long-pending trade agreement that cuts tariffs and removes one of the biggest uncertainties weighing on investor sentiment.
The Sensex surged more than 2,500 points in opening trade and the Nifty jumped over 700 points, triggering a broad relief rally across sectors.
The deal lowers US tariffs on Indian goods from 50% to 18% and eliminates the additional duty on Russian crude.
US President Donald Trump said the agreement was “effective immediately” after a late-night call with Prime Minister Narendra Modi, giving markets instant clarity.
GROWTH, EARNINGS AND RUPEE OUTLOOK IMPROVE
Calling the tariff cut transformational, VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the trade deal is a “game changer for the Indian economy and stock markets.”
He said the benefits will play out across the macroeconomy. India’s GDP growth could rise to 7.5% in FY27 as exports strengthen.
Corporate earnings may accelerate to 16–18%, and the rupee is expected to strengthen due to clearer trade flows and the prospect of renewed foreign investor inflows.
Vijayakumar added that markets had been “hugely short,” and the sudden clarity has triggered strong short covering that is amplifying the rally. He expects the upswing to be broad-based, led by banking, non-banking financials, telecom, IT and capital goods. Textile stocks, he said, will be among the biggest winners because of the tariff reduction.
He believes the India–US deal, progress on the EU–India trade negotiations and a growth-focused Budget together create a macro environment supportive of a sustained market move.
INDIA GAINS A COMPETITIVE EDGE IN ASIA
Vikram Kasat, Head Advisory at PL Capital, said the tariff cut puts India ahead of several Asian export competitors.
“At 18%, India’s tariff rate is now lower than Bangladesh, Sri Lanka, Taiwan and Vietnam, all of whom face 20% tariffs. This makes India far more competitive in the US market,” he said.
Kasat expects labour-intensive sectors such as textiles, gems and jewellery and engineering goods to benefit immediately. He predicts large-scale short covering by foreign portfolio investors, who were heavily short going into the announcement. He added that the deal is likely to stabilise the rupee and ease pressure on domestic interest rates.
With Russian crude restrictions removed, he said India’s oil imports will now shift more towards the US and Venezuela.
INDIA REGAINS ITS ADVANTAGE OVER CHINA
Looking at the strategic picture, Rahul Ahluwalia, founder-director at the Foundation for Economic Development, said the deal puts India back on competitive footing in the United States.
“With the punitive tariffs, India had been one of the worst-placed countries trading with the US. Now we are better positioned than China and on par with Vietnam and Bangladesh. Only the EU, UK and Japan have lower tariffs than us,” he said.
Ahluwalia warned, however, that India should not become complacent. “Trump has shown unpredictability. Our immediate priority should be internal reforms that strengthen institutions and competitiveness. Only competitiveness will help us survive a volatile geopolitical environment.”
WHY MARKETS REACTED WITH EUPHORIA
Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Group, said the previous 50% tariff had limited direct impact on large listed firms but created a major geopolitical overhang that pushed foreign investors away.
He said MSMEs and low-margin exporters bore the brunt of the earlier tariff shock. But the episode also accelerated key domestic reforms, including GST rationalisation, labour changes and diversification of India’s foreign exchange reserves. It also compelled India to seek deeper access to more stable markets such as the European Union.
Hajra believes the underperformance of equities over the past year was driven by FPI outflows linked to geopolitical uncertainty, not weak corporate fundamentals. With the India–US relationship stabilising, he said the geopolitical risk premium attached to Indian assets will now start to fade.
“In that sense, Indian equities have been pricing in a geopolitical discount that is now disappearing. The catch-up rally will come not only from earnings upgrades, but from the reversal of pessimism caused by the tariff shock,” he said.
WHY ITS GOOD FOR THE RUPEE AND STOCK MARKET
The rupee strengthened in early offshore trading as export prospects improved and expectations of foreign inflows rose. A clearer trade environment, along with stable crude prices, may support further appreciation in the currency.
Analysts say Tuesday’s sharp rally is more than a one-day reaction.
The combination of short covering, improving foreign flows, a healthier macro backdrop and stronger export positioning gives the Sensex and Nifty space for a more sustained upward trend.
With the tariff uncertainty now removed, the indices enter a phase where a firmer rupee, renewed investor appetite and greater global clarity could drive a more durable market uptrend.