India-US Trade Agreement Sparks Market Optimism
Mumbai, February 3, 2026 – Indian markets surged Tuesday morning, fueled by news of a breakthrough trade agreement between India and the United States. The agreement, finalized after months of negotiations, has instilled a sense of optimism among investors, with the Sensex jumping over 2,300 points in early trade.
The key highlight of the deal is the reduction of reciprocal tariffs on Indian goods exported to the US, bringing them down to 18% from the previous 25%. Moreover, the additional 25% duty linked to India's purchase of Russian crude oil has been eliminated. US President Donald Trump, in a social media post, stated that India would also reduce its tariffs and non-tariff barriers on US goods to zero. Trump also claimed that India will buy over $500 billion in US goods and energy. However, official statements from the Indian government have so far confirmed the tariff relief but not the commitments related to oil or purchase.
Prime Minister Narendra Modi confirmed the tariff reduction, expressing his delight that "Made in India products will now have a reduced tariff of 18%". He also thanked President Trump for the announcement, emphasizing the benefits of cooperation between the two large economies.
The announcement has been welcomed by the US Chamber of Commerce, with President and CEO Suzanne P. Clark stating that it would reduce tariffs and non-tariff barriers, benefiting companies and workers in both nations.
Market analysts believe that this trade agreement could act as a catalyst to revive foreign institutional investor (FII) interest and reignite risk appetite. Divam Sharma, Co-Founder and Fund Manager at Green Portfolio PMS, said that the deal is a "massive positive, coming exactly when markets needed it" and could lead to a significant shift of US FII capital to India.
The reduction in tariffs is expected to enhance competitiveness for Indian exporters across various sectors, including textiles, seafood, and automobiles, improving order visibility and profitability. Sectors like textiles, leather, and gems are expected to particularly benefit from the deal.
Economists also foresee tangible macro benefits, with Deepak Agrawal, CIO–Debt at Kotak Mutual Fund, suggesting that the tariff reduction is likely to improve India's balance of payments, strengthen the rupee, and support a rise in foreign exchange reserves. The rupee indeed jumped 119 paise to 90.30 against the US dollar in early trade.
The agreement follows a period of strained trade relations between the two countries, with the US imposing tariffs as high as 50% on Indian imports in August 2025. Negotiations resumed in October, culminating in the current agreement.
While the full details of the trade agreement are yet to be released, the announcement has generated considerable optimism in the Indian markets and is expected to strengthen bilateral economic ties between India and the US. Nilesh Shah, MD of Kotak Mahindra AMC, noted that the deal removes a major source of uncertainty hanging over Indian markets.
Parallel efforts on securing mineral networks were also undertaken earlier this month when US Treasury Secretary Scott Bessent convened a Finance Ministerial in Washington to explore ways to strengthen and diversify critical mineral supply chains, particularly rare-earth elements.