Indian equities are set to regain ground against Asian peers after India and the US finalized a long-awaited trade agreement. Early market indicators signal rising risk appetite, although challenges such as mixed earnings, valuation concerns, and uncertainty over future purchase commitments remain.
Indian equities are primed to narrow their rare underperformance versus Asian peers after New Delhi and Washington clinched a long-awaited trade agreement, removing a key overhang that had weighed on the nation’s financial assets and triggered record foreign outflows.
The accord, announced late Monday night India time, saw President Donald Trump cut the reciprocal tariff on Indian goods to 18% from 25% and eliminate an additional 25% duty linked to India’s purchases of Russian crude oil. The move is widely seen by fund managers as a catalyst for global investors to return to Indian equities, which logged their worst January since 2016, while also offering support to a rupee that has slid to a series of record lows.
“This is a good reset to India-US trade that may shift foreign investor sentiment toward India to positive,” said Arvind Chari, chief investment strategist at Q India UK. “India’s underperformance versus emerging markets could reverse.”
Market Mood
Early market reaction pointed to rising risk appetite. Nifty 50 futures traded at GIFT City surged as much as 4.5% overnight following the announcement, signaling optimism ahead of Tuesday’s session. Cash equities had shown tentative signs of a rebound earlier in the day, with the NSE Nifty 50 Index climbing 1.1% — its strongest gain in more than two months — even as most Asian markets closed in the red amid a broader regional selloff. The advance came despite investor concerns over a proposed tax hike on equity derivatives in the Feb. 1 budget and a sharp drop in metal prices that weighed on risk assets globally.
Valuation Reset
India’s valuation premium over Asia has also fallen to its lowest level in nearly five years as concerns about steep US tariffs and a drawn-out earnings slowdown weighed on sentiment. The trade deal’s finalization comes just a day after Sunday’s budget, which offered fresh support for exporters and strategic sectors such as rare earths, reinforcing early signs of improving investor confidence.
“It is a great development coming immediately after a path-breaking budget announcement that will lead to a reversal of foreign outflows and also rally in the Indian currency,” said A Balasubramanian, chief executive officer of Aditya Birla Sun Life AMC Ltd. “Close to $100 billion was waiting to enter into India over the next two to three years, pending the tariff settlement with the US.”
Lingering Risks
Still, not all of India’s challenges have eased. Earnings this reporting season have been mixed, and investors are awaiting clarity on India’s commitment to buy $500 billion of goods from the US as part of the deal. At the same time, scope for further monetary easing is narrowing, with economists in a Bloomberg survey expecting the central bank to hold rates on Feb. 6.
“The deal that US officials are outlining seems a relatively favorable one, although there will be questions as to whether the $500 billion in purchase commitments ever come to fruition,” said Michael Brown, senior research strategist at Pepperstone Group.
Growth Bets
For now, investors are looking past near-term uncertainties, drawing comfort from the finalization of the US-India trade deal and the budget’s growth tilt, which prioritized manufacturing incentives and infrastructure spending. Morgan Stanley expects stronger capital expenditure, services-sector growth and wider AI adoption to underpin earnings growth in the fiscal year beginning April 1.
“We remain constructive on Indian equities,” strategists including Ridham Desai wrote in a note before the US trade deal was announced, pointing to the prominence of semiconductors in the budget speech as a signal of long-term growth priorities.
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Published on February 3, 2026
