India’s financial markets rallied sharply yesterday after a trade deal that cut US tariffs on Indian goods to 18 per cent from 50pc, which investors said removed a key drag on the country’s stocks, bonds and currency.
India’s benchmark stock index, the Nifty 50, rose 2.5pc and the rupee strengthened by more than 1pc to 90.2650 per dollar in early trading. The yield on the country’s 10-year benchmark bond declined 5 bps to 6.72pc.
The Nifty registered its best one-day gain since May 2025, while the rupee logged its best rally in more than seven years.
Foreign institutional investors turned net buyers of Indian stocks yesterday on US trade deal cheer, with inflows at their highest since October 28 at 52.36 billion rupees, provisional data from India’s National Stock Exchange showed.
US President Donald Trump announced the deal on social media after a call with Indian Prime Minister Narendra Modi, noting that India had agreed to halt Russian oil purchases and lower trade barriers on US exports.
While Trump’s announcement was light on detail, an Indian government official said India had agreed to buy petroleum, defence goods and aircraft from the US, while partly opening its guarded agricultural sector.
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 was expected to alleviate the persistent drag, with investors expecting a bounceback 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 JP Morgan Asset Management.
The trade deal was also expected to lift a pall of geopolitical uncertainty that had accompanied the US-India trade rift, keeping investors cautious about ploughing 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,” Citi economists said in a note.
The breakthrough with the US arrives less than a week after India signed a long-awaited trade deal with the European Union that was expected to eliminate or reduce tariffs on 96.6pc of traded goods by value.
Analysts at Jefferies expect Indian companies in the auto ancillary, solar manufacturing and chemicals sectors to be among the largest beneficiaries of the US-India trade deal.
“The reduction of the US tariff rate on most Indian goods will reinvigorate India’s export growth to the US,” credit rating agency Moody’s said in a note.
India’s exports to the US rose 15.88pc year on year to $85.5 billion in the January-November period while imports stood at $46.08bn, Indian government data shows.
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