The interim trade agreement framework released by the US and India over the weekend is seen as positive for Indian markets because it removes uncertainty. However, experts do not expect a sharp upward move after the benchmarks rose over 3% last week.
Tariff Reset Effect
Arun Kejriwal, founder of Kejriwal Research said the deal was broadly on expected lines and removes uncertainty. But he believes the markets need to consolidate before rising further after last week’s surge, which saw extreme volatility.
Data shows that the Sensex saw two of its most volatile days since May 5, 2024 in the week ending February 6, 2026. This was due to the Union Budget announcement and the US agreeing to charge an 18% tariff rate on Indian exports compared to 50% previously.
A JM Financial report said the agreement is a clear sentiment positive for Indian equities, particularly export-oriented sectors but elevated absolute valuations suggest that incremental foreign institutional investor inflows may be gradual rather than immediate and from a macro standpoint, India’s relative external position improves versus several Asian EM peers that continue to face higher effective US tariff.
Kejriwal added that valuations are a concern only in small and mid-caps and further consolidation in rupee prices will increase the likelihood of a reversal in foreign flows.
Valuation Hurdles
George Thomas, fund manager at Quantum Asset Management Company, said trade deals with the EU and the US should help the Indian currency gain stability, which could also trigger FPI inflows. He added, “India’s relative valuation when compared to the MSCI emerging market index or the US S&P index is quite favourable compared to a year ago because both indices have rallied. From a two-year perspective, things should be better than they were in the last few quarters.”
As part of this framework, the US will apply a reciprocal tariff rate of 18% on Indian goods while also outlining a path for removing reciprocal tariffs on a wider set of products. The framework also includes commitments on reducing Indian tariffs on US industrial and agricultural goods, removing select US tariffs on aircraft and aircraft parts, and granting India preferential access through a tariff rate quota for certain automotive parts.
Nitin Jain, CEO and Director, Kotak Mahindra Asset Management Singapore also showed optimism with the deal. “The much-awaited India-US tariff deal removes the key overhang on the Indian economy, markets and currency while taking sufficient measures to safeguard local interests into account.”
He added that India’s effective tariff at 18% is almost half the tariffs on Chinese goods and lower than other Asian peers. “Coming quickly on the back of the India – EU FTA and with over 20 other trade agreements with large economies/trading blocks, this puts India in the pole position in the race for the China +1 opportunity in global supply chains,” he said.