India–U.S. Trade Deal: Why Markets Care, What Changes on the Ground and Where the Real Opportunities Lie

After months of uncertainty and tariff-related overhang, India and the United States have finally announced a trade agreement that lowers reciprocal tariffs on Indian goods to 18 per cent from the earlier 25 per cent. While the announcement itself came late in the evening yesterday, the market reaction has been swift and telling — equities, the rupee and export-oriented stocks will all respond positively.

For markets, this deal is less about political symbolism and more about removing a key macro risk that had been hanging over Indian assets since mid 2025. In an environment already grappling with global volatility, FII outflows and valuation resets, the agreement brings clarity at a critical juncture.

Why This Trade Deal Matters for Markets

Over the past year, the India–U.S. trade relationship has become a growing source of uncertainty for investors. The sharp escalation in tariffs, some as high as 50 per cent, hurt export competitiveness, disrupted order flows and weighed on sentiment across several labour-intensive and manufacturing-heavy sectors. The reduction of reciprocal tariffs to 18 per cent does three important things for markets:

Restores visibility for exporters: Export-heavy businesses can now plan production, pricing and capacity utilisation with greater certainty. This is particularly important for sectors operating on thin margins where tariff shocks directly affect profitability.

Removes pressure on the rupee and capital flows: Elevated tariffs had added to trade-related stress and indirectly worsened FPI sentiment. The deal eases that pressure, improving the overall macro risk perception for India.

Signals policy continuity and external stability: Coming close on the heels of other trade initiatives, the agreement reinforces the view that India is positioning itself as a reliable, rules-based trading partner at a time when global trade remains fragmented.

In short, markets are not celebrating the deal for what it promises in theory but for what it removes in practice, uncertainty.

How Big Is the Export Relief?

Based on trade data and earlier government estimates, around USD 48 billion worth of Indian merchandise exports to the U.S. are expected to benefit from lower tariffs. These are primarily sectors that were directly hit by the steep tariff increases last year.

However, it is equally important to note what does not change. Roughly USD 8–9 billion of exports, largely in steel, aluminium, automobiles and certain machinery categories, will continue to face higher duties under Section 232 of U.S. trade law. These are national-security-linked tariffs and remain outside the scope of the current agreement. This distinction is crucial for investors. The deal is meaningful, but it is not uniform across all sectors.

Sectoral Impact: Who Gains the Most?

Textiles and Apparel: Textiles are among the clearest beneficiaries. The U.S. accounts for a significant share of India’s textile and apparel exports and the earlier tariff hikes had severely impacted competitiveness versus peers like Bangladesh and Vietnam. With tariffs now lower, Indian exporters regain pricing flexibility and order visibility. Stocks in apparel manufacturing, home textiles and made-ups are likely to see renewed interest.

Gems and Jewellery: This sector had been under pressure due to a combination of weak global demand, lab-grown diamond disruption and tariff-related cost escalation. Lower tariffs reduce landed costs for U.S. buyers, easing margin stress and working capital pressure for exporters. While demand recovery may be gradual, the earnings risk has clearly reduced.

Chemicals: Chemicals, especially agrochemicals and speciality intermediates, stand to benefit selectively. The U.S. is a key market for several Indian chemical companies and tariff relief strengthens India’s position under China-plus-one sourcing strategies. That said, pricing power and contract structures will determine how quickly benefits flow through to earnings.

Engineering Goods and Auto Ancillaries: Engineering exports form the largest share of India’s merchandise exports to the U.S. These businesses typically operate at low single-digit margins, making tariff reductions immediately earnings accretive. Auto ancillary exporters, capital goods suppliers and precision engineering firms are likely to see improved order competitiveness over the medium term.

Seafood and Fisheries: The seafood sector, particularly shrimp exporters, had been hit hard by higher tariffs due to its heavy dependence on the U.S. market. Lower tariffs should stabilise volumes and margins, improving earnings visibility for listed players with meaningful U.S. exposure.

IT and Services: Software services are not directly impacted by tariffs, but the deal improves overall bilateral sentiment. This reduces tail risks around cross-border business friction and supports a stable outlook for IT exporters indirectly.

What Markets Are Actually Pricing In

It is important to separate near term sentiment from longer-term fundamentals. The immediate market reaction reflects:

• Relief from a known macro risk
• Expectations of improved earnings visibility in select export sectors
• Potential reversal of risk-off positioning in export-heavy stocks

However, markets are also aware that:

• The full text and operational details of the agreement are still awaited
• Some tariffs remain in place under separate legal frameworks
• Global demand conditions, especially in the U.S., remain uneven

As a result, this is unlikely to trigger a broad, indiscriminate rally. Instead, markets are expected to reward companies with high U.S. exposure, strong balance sheets and operational leverage more selectively.

The Bigger Picture: Why This Deal Comes at the Right Time

The timing of the agreement is as important as its content. Indian markets entered 2026 facing multiple headwinds, global risk-off sentiment, FII selling, rising geopolitical uncertainty and valuation compression in mid and small caps. Against this backdrop, the trade deal acts as a stabilising external factor, not a growth accelerator.

Disclaimer: The article is for informational purposes only and not investment advice.