Mumbai: India’s financial markets rallied sharply on Tuesday after a trade deal that slashed U.S. tariffs on Indian goods to 18% from 50%, a development that investors said lifts a key overhang over the country’s stocks, bonds and currency.
India’s benchmark stock index, the Nifty 50 (.NSEI), opens new tab was up nearly 3% and the rupee climbed over 1% to 90.40 per dollar in early trading. The yield on the country’s 10-year benchmark bond declined 5 bps to 6.72%
The Nifty rose as much as 5% in early trading with the rise putting it on course for the best one-day gain in five years while the rupee was on track for its best day since November 2022.
U.S. President Donald Trump announced the deal on social media following a call with Indian Prime Minister Narendra Modi, noting that India had agreed to halt Russian oil purchases and lower trade barriers on U.S. exports.
Indian stock markets and the rupee have been battered since the tariffs were levied by Washington in late August, placing them among the worst-performing emerging market assets in 2025, with record foreign investor outflows.
The trade breakthrough is expected to alleviate the persistent drag, with investors expecting a bounce-back in foreign sentiment and flows into Indian assets.
“A successful bilateral trade agreement should help enhance investor confidence, boost foreign investment and capital expenditure plans while strengthening the Indian rupee,” said Marcella Chow, global market strategist at J.P. Morgan Asset Management.
Indian assets rally after trade breakthrough with U.S.
Indian assets rally after trade breakthrough with U.S.
The trade deal is also expected to lift a pall of geopolitical uncertainty which had accompanied the U.S.-India trade rift, keeping investors cautious on plowing money into the country.
“The key tail risk of geopolitical isolation about which investors were concerned has now been adequately addressed by back-to-back trade deals with the European Union and United States,” economists at Citi said in a note.
The breakthrough with the U.S. comes less than a week after India signed a long-awaited trade deal with the European Union that is expected to eliminate or reduce tariffs on 96.6% of traded goods by value.
Stocks of Indian information technology, auto, chemical and textile firms jumped on Tuesday. Analysts at Jefferies expect firms in the auto ancillary, solar manufacturing and chemicals sector to be among the largest beneficiaries of the U.S.-India trade deal.
“From a macro perspective, this also reduces the risks to the growth outlook for the fiscal year starting April (FY27) and provides an upside to our 6.9% growth forecast. The balance of payments which we had anticipated to be in a marginal deficit for FY27 could also turn positive as the trade deal triggers capital inflows well into FY27,” said Sakshi Gupta, principal economist at HDFC Bank.
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