The recent trade agreement between India and the United States has ignited a surge of optimism within the Indian IT sector. Announced on Monday, February 3, 2026, the deal involves a significant reduction in US tariffs on Indian goods, dropping from a punitive 50% to a more manageable 18%. This development has been welcomed by industry leaders and analysts alike, who anticipate a positive impact on the sector's growth and overall business environment.

While the IT sector primarily focuses on services exports and isn't directly affected by goods tariffs, the trade deal is expected to indirectly benefit the industry by improving market sentiment and strengthening India-US relations. The agreement signals a renewed confidence in India as a key ally and a counterweight to China in the global trade order. This enhanced relationship is expected to create a more favorable business environment for Indian IT companies operating in the US, which accounts for a significant portion of their revenue.

The reduction in tariffs is anticipated to boost Indian exports, enhance competitiveness, and benefit key sectors such as textiles, engineering, chemicals, and jewelry. Furthermore, the deal includes a commitment from India to increase its purchase of American goods, including energy products and technology. This commitment is expected to further solidify the trade relationship and foster greater collaboration between the two countries in various sectors.

The Indian IT sector is already on the cusp of a strong recovery, with projections indicating a sharp upturn in 2026, driven primarily by the increasing demand for Artificial Intelligence (AI) services. A recent report by HDFC Securities Institutional Equities revealed that IT firms are transitioning towards AI-centric projects, with AI deals constituting nearly 74% of all contracts signed in the last six quarters. Major IT companies like TCS, Infosys, HCLTech, and Wipro have reported that a majority of their recent contract wins are centered around generative AI, machine learning, and AI-led automation.

Budget 2026 also reflects India's ambition to be a leader in the digital economy, with an emphasis on semiconductors, cloud infrastructure, and AI platforms. The expansion of the India AI Mission aims to accelerate AI research and deployment across various sectors.

The positive sentiment surrounding the trade deal has already triggered a rally in the Indian stock market, with IT stocks experiencing significant gains. Shares of companies like Persistent Systems, Infosys, HCL Technologies, and TCS have surged, driving the Nifty IT index up by nearly 6%. This positive market reaction reflects the confidence of investors in the growth potential of the Indian IT sector in light of the improved trade relations between India and the US.

While the finer details of the trade agreement are still emerging, the initial response from the Indian IT sector is overwhelmingly positive. The reduction in tariffs, coupled with the growing demand for AI services and the government's focus on digital transformation, positions the Indian IT sector for a period of strong growth and innovation. The deal is expected to provide much-needed macro-predictability for the IT sector, which derives a significant portion of its revenue from North America.