Market Gains Momentum
The Indian equity landscape witnessed a powerful surge, with broad-based buying across various sectors propelling the market significantly higher early
Tuesday. This upward movement was directly attributed to the highly anticipated announcement of a trade pact between India and the United States. By 9:25 am, the Sensex had impressively climbed by 2,421 points, marking a 2.97 per cent increase and reaching the 84,088 level. Concurrently, the Nifty experienced a substantial gain of 741 points, or 2.96 per cent, settling at 25,829. This positive momentum wasn't confined to the primary indices; broader market segments also demonstrated robust performance. The Nifty Midcap 100 index saw a notable rise of 3.10 per cent, while the Nifty Smallcap 100 index added an even more impressive 3.25 per cent, indicating widespread investor optimism.All major sectoral indices were in the green, showcasing a comprehensive market uplift. The real estate sector led the charge with a gain of 4.47 per cent, followed closely by the automotive sector at 3.78 per cent. Consumer durables also registered strong performance with a 3.69 per cent increase, and the crucial information technology (IT) sector contributed positively with a 3.04 per cent rise. This broad-based rally signaled strong confidence in the economic outlook spurred by the trade deal.
Tariff Cuts Unveiled
The cornerstone of this market exuberance is the newly struck trade agreement between India and the United States, which brings about significant reductions in reciprocal tariffs. Under the terms of this accord, the existing tariff rate on Indian goods entering the US will be slashed from 25 per cent down to 18 per cent. This substantial decrease makes Indian exports more competitive globally. Furthermore, the agreement stipulates the elimination of an additional 25 per cent duty that was imposed on the purchase of Russian crude oil by India. President Donald Trump officially declared that the trade deal would be "effective immediately" following a late Monday phone call with Prime Minister Narendra Modi. This immediate tariff relief for Indian products entering the US market was a key factor in alleviating market concerns.This newly established tariff rate of 18 per cent places India in a more favorable position compared to several other major export-oriented Asian economies. For instance, countries like Bangladesh, Sri Lanka, Taiwan, and Vietnam currently face tariffs of 20 per cent on their goods entering the US. Similarly, Indonesia, Malaysia, Thailand, the Philippines, and Pakistan are subject to tariffs of 19 per cent. The reduction for India, therefore, represents a significant competitive advantage and a positive development for its trade relations with the US.
Economic Projections Brighten
Market analysts and watchers are projecting a significantly brighter economic future for India in the wake of this trade agreement. The immediate impact is expected to be a boost in India's growth rate, with forecasts suggesting an acceleration to around 7.5 per cent for the fiscal year 2027. This upward revision is largely attributed to the anticipated increase in exports to the United States, facilitated by the more favorable tariff structure. Moreover, corporate earnings, which have already been showing signs of recovery, are now expected to experience a more pronounced acceleration. Projections indicate that corporate earnings could grow at an impressive rate of 16 per cent to 18 per cent by FY27, driven by enhanced export opportunities and improved domestic economic conditions.Furthermore, analysts are optimistic about the Indian Rupee's potential to rebound sharply, bolstered by this trade deal. The combination of the India-US trade agreement, coupled with an anticipated EU-India trade deal and a growth-oriented Union Budget, is expected to significantly boost overall market sentiment. This positive sentiment is predicted to trigger immediate foreign capital inflows into the Indian market. Such inflows could substantially improve India's Balance of Payments (BoP) position, leading to greater financial stability and economic resilience.
Sectoral and Capital Flows
The positive sentiment generated by the trade deal is poised to benefit a wide array of sectors, particularly large-cap companies. Key sectors such as banking, non-banking financial companies (NBFCs), telecommunications, capital goods, and IT are identified as prime beneficiaries. Market observers anticipate substantial inflows of foreign capital into these dominant segments, as foreign institutional investors (FIIs) are likely to view these sectors as attractive investment opportunities. This increased interest from FIIs could lead to a significant surge in their investment in the Indian equity market, further driving up stock prices and market liquidity.The broader market indices, including the Nifty Midcap 100 and Nifty Smallcap 100, have already demonstrated strong gains, underscoring the widespread positive sentiment. Major gainers include the realty, auto, consumer durables, and IT sectors, highlighting the diverse impact of the trade deal. This broad-based rally indicates that the benefits of the agreement are expected to permeate across various segments of the Indian economy, fostering overall growth and prosperity.
