Stock market outlook after India-US trade deal
Indian equity markets staged a smart rally on the bourses on Tuesday, following the announcement of the long-awaited
India-US trade deal, which reduced reciprocal tariffs from 25 per cent to 18 per cent, while doing away with the penal 25 per cent additional tariffs on India exports to the US.
The
BSE Sensex index skyrocketed 4,205 points on the BSE in the intraday trade, while the
Nifty50 reclaimed the 26,300-mark after it jumped 1,253 points during the session as investors saw the finalisation of the deal removing a key geopolitical overhang.
That said, while analysts broadly agree that the agreement is a clear positive for the markets medium-to-long term outlook, they caution that the durability of the rally will ultimately hinge on the pace and breadth of earnings recovery rather than sentiment alone.
"We believe the trade deal is a great boost for the sombre market sentiment; but one must remember that exports to the US are a small part of our $4-trillion economy. Thus, even though the deal will boost sentiment in the short-term, one must not expect miracles out of it. The market is expected to rally on short covering. But we must look for a fresh long build-up for the trend to sustain," said Apurva Sheth, head of market perspectives and research at SAMCO Securities.
The US accounted for approximately $92 billion, or 20 per cent, of India's goods exports in calendar year 2025, which is equivalent to about 2.2 per cent of the gross domestic product (GDP) last year.
India-US sign trade deal
In a Truth Social post, President Donald Trump announced that US and India have agreed to stop purchasing Russian crude oil, and purchasing more crude oil from US and Venezuela, and in
turn.
India, Trump's post added, in turn will increase its procurement of US energy, technology, agriculture and coal products worth $500 billion over five years.
Analysts, however, noted that the direct impact of the original tariffs on the earnings of India’s listed corporates was limited as the tariffs were skewed toward privately held MSMEs and low-margin manufacturing firms rather than large, listed firms.
"Consequently, the subsequent rollback in tariff rates is unlikely to materially alter the earnings trajectory of Indian equities," said Sujan Hajra, chief economist and executive director at Anand Rathi Group.
Focus shifts to earnings
For a sustainable uptrend in the markets, revival of India Inc's earnings remains a key focal point. Sonam Srivastava, founder and fund manager at Wright Research PMS, said though the near-term market reaction is understandably sharp, sustainability will depend on execution, sector-specific uptake, and whether earnings upgrades follow.
Notably, the October-December quarter (Q3FY26) earnings for the BSE Sensex companies has been the weakest in the past five years. As per the data compiled by Business Standard, the benchmark index trailing earnings per share (EPS) of the BSE Sensex was up just 1.3 per cent year-on-year (Y-o-Y) so far — the lowest since April 2021.
The benchmark’s trailing EPS stood at ₹3,637.9 at the end of January. This is 0.8 per cent lower than the index’s EPS of ₹3,665.8 at the end of November 2025, after the second quarter 2025-2026 (Q2FY26) earnings season.
Foreign investors, who have been on a selling spree, remain worried about the pace and durability of India's earnings recovery.
Repeated downgrades to corporate profit estimates in FY25 and FY26, coupled with failed turnaround expectations, have weakened their confidence, analysts said.
Besides, information technology (IT), consumer staples, and banking and financial services (BFSI) sectors have reported slower earnings growth in Q3FY26, raising concerns that consensus expectations for FY27 may be overly optimistic.
Nonetheless, the India-US trade deal is expected to reset the base for Indian markets performance over a longer time horizon, analysts said. The Indo-US trade announcement, which comes on top of the Indo-EU FTA, could assuage the growing concerns over India’s geopolitical seclusion and bring back foreign flows.
"Even-though valuation concerns persist for Indian equities (vs peers) and hangover of AI trade remains, we don't rule out the Indian equities becoming the best performers in Asia in the upcoming weeks," said a note by Elara Capital.
 "India-US deal done, but earnings recovery key to sustaining rally: Analysts")
