India’s financial markets saw a significant surge on Tuesday following a trade agreement that reduced U.S. tariffs on Indian products to 18% from 50%. This move was well-received by investors as it alleviated a major concern impacting the country’s stocks, bonds, and currency.
The Nifty 50 index in India rose by close to 3%, while the Indian rupee strengthened by over 1% to 90.40 against the dollar during early trading. Additionally, the yield on the country’s 10-year benchmark bond decreased by 5 basis points to 6.72%.
In the initial trading hours, the Nifty soared by up to 5%, setting it up for its most significant one-day increase in five years. Similarly, the rupee was poised for its best performance since November 2022.
The trade deal was announced by U.S. President Donald Trump on social media after a discussion with Indian Prime Minister Narendra Modi. Trump highlighted that India had agreed to cease Russian oil imports and lower trade barriers for U.S. goods.
The Indian financial markets and the rupee had been under pressure since the imposition of tariffs by the U.S. in late August, making them some of the weakest performing emerging market assets in 2025 with substantial outflows of foreign investment.
The breakthrough in trade is anticipated to relieve the persistent challenges, with investors anticipating improved foreign sentiment and increased investment in Indian assets.
According to Marcella Chow, a global market strategist at J.P. Morgan Asset Management, “A successful bilateral trade agreement should help enhance investor confidence, boost foreign investment and capital expenditure plans while strengthening the Indian rupee.”
The trade pact is also expected to dispel geopolitical uncertainties that accompanied the U.S.-India trade tensions, which had made investors cautious about investing in the country.
Economists at Citi noted in a statement, “The primary concern of geopolitical isolation that worried investors has been effectively addressed through consecutive trade agreements with the European Union and the United States.”
The agreement with the U.S. comes shortly after India finalized a long-awaited trade deal with the European Union, aiming to reduce or eliminate tariffs on 96.6% of traded goods by value.
Shares of Indian companies in the information technology, automotive, chemical, and textile sectors experienced significant gains on Tuesday. Analysts at Jefferies highlighted that firms in the auto ancillary, solar manufacturing, and chemical industries are expected to be the major beneficiaries of the U.S.-India trade deal.
Sakshi Gupta, principal economist at HDFC Bank, mentioned, “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.”
