Market Surge: India-US Trade Deal Sparks Investor Optimism

The Indian stock markets experienced a significant surge of 2.5% on Tuesday, driven by the announcement of a trade deal between India and the US. This deal drastically reduced tariffs on Indian exports to the US from 50% to 18%, which had been a long-standing concern for many exporters. As a result, the Sensex rose to 83,739.13 points, marking an increase of 2.54%, while the Nifty 50 closed at 25,727.55 points, up by 2.55% from the previous day.

This rally was broad-based, with nearly three-fourths of stocks on the Bombay Stock Exchange (BSE) and all sectoral indices ending in the green. The positive sentiment was evident even before the Indian markets opened, as American Depository Receipts (ADRs) of Indian companies listed on US exchanges saw a surge following the announcement of the trade deal.

The delay in finalizing this trade agreement had previously weighed heavily on Indian equity markets, which have struggled due to low exposure to the ongoing AI-driven investment boom and global geopolitical uncertainties. In the past few months, the Indian rupee had faced significant challenges, but on Tuesday, it made a notable recovery, gaining over 1% against the US dollar, closing at 90.27 per dollar.

Foreign investors returned to the Indian markets, purchasing equities worth approximately Rs 5,236.28 crore (around $580 million), the highest level seen in over three months. Nilesh Shah, Managing Director of Kotak Mahindra Asset Management, emphasized that favorable relations between countries often lead to increased capital flow. He expects the trade deal to eliminate perceived constraints, further boosting market confidence and strengthening the rupee.

Textile companies were among the biggest winners, with shares of Gokaldas Exports and Welspun Living hitting the upper circuit limit of 20%. These companies heavily rely on the US market for their revenues. Other sectors, including chemicals, gems and jewelry, and automotive manufacturers, also witnessed significant gains.

While analysts remain optimistic about the future trajectory of corporate earnings following this deal, they urge caution. The fine print of the agreement is still awaited, especially concerning US President Donald Trump's remarks about India halting Russian oil purchases and committing to $500 billion in US goods, along with a push towards reducing tariffs and non-tariff barriers.

India's imports from the US in 2024-25 amounted to $46 billion, with total global imports reaching $721 billion in the last fiscal year. Radhika Rao, Senior Economist at DBS Bank, noted that further details from the bilateral trade agreement will clarify beneficiary product lines and investment commitments. The market will be closely monitoring these developments in the coming weeks.