The Indian Rupee experienced a surge in trading on the Non-Deliverable Forward (NDF) market following the announcement of a trade deal between the United States and India. This surge reflects growing expectations of renewed foreign investment inflows into the Indian market.

Deal Details and Impact

The trade deal, finalized on Monday after months of negotiations, marks a significant development in the relationship between the two countries. U.S. President Donald Trump announced the agreement, stating that the U.S. would lower tariffs on Indian goods from 25% to 18%. Previously, tariffs on some Indian goods exports were as high as 50%, the highest in Asia. In return, India has agreed to reduce tariffs on U.S. goods to zero. According to Trump, India has also committed to purchasing over $500 billion worth of U.S. products across sectors like energy, technology, and agriculture. However, details remain limited, with no formal proclamation or timeline released.

The agreement is expected to encourage a return of foreign capital after record equity outflows in 2025 had put sustained pressure on the Rupee. According to Nilesh Shah, MD of Kotak Mahindra AMC, the deal "removes a hanging sword over the rupee, equity, and rates market". Ashishkumar Chauhan, MD of NSE, also hailed the deal as a "welcome move for global trade".

Rupee Performance and Market Sentiment

The one-month dollar/rupee NDF levels suggest an opening in the range of 90.15–90.25, compared to Monday's closing of 91.5125. The rupee had been under pressure, hitting a record low of 92 per USD on January 28th. The recent weakening was attributed to tepid portfolio inflows, with the rupee being the worst-performing Asian currency in 2025, declining nearly 5% for the year.

Analysts believe the trade deal could reverse this trend by improving export competitiveness and reducing tariff uncertainty. Marc Velan, head of investments at Lucerne Asset Management in Singapore, stated that the deal "removes a chunk of policy and tariff uncertainty that had been weighing on Indian assets, opening the door for a near-term bounce in the rupee and equities via sentiment and foreign flows".

Broader Economic Implications

The U.S.-India trade deal is expected to have a wide-ranging impact on both economies. The reduction in tariffs should make Indian goods more competitive in the U.S. market, boosting exports of textiles, machinery, and raw materials. This, in turn, could help to tame the imbalance in forex flows that has pressured the currency. The deal is viewed as a "big win for businesses, supply chains, and the India–US partnership".

Geopolitical Context

The trade agreement also has geopolitical implications. As part of the deal, India has pledged to stop purchasing Russian oil. This move aligns with Washington's efforts to reshape global energy flows away from Russia. In exchange, the U.S. will drop the additional 25% tariff imposed on India for its continued imports of Russian crude.

Expert Opinions

Soumya Kanti Ghosh, member PMEAC, and group chief economic advisor, State Bank of India, said that "India has done remarkably well to firmly stand its ground given the hostile geopolitical backdrop by getting the tariff rate down from 50% to 18%".

Looking Ahead

While the initial market reaction has been positive, some analysts caution that the "devil is in the details". The legal text of the agreement is still being finalized, and sector-wise details are awaited. It remains to be seen how effectively the deal will be implemented and what its long-term impact on the Indian economy and currency will be. Trading Economics global macro models and analysts expect the Indian Rupee to trade at 91.44 by the end of this quarter and 90.22 in 12 months.