Markets giving too much importance to pending India-US trade deal: Analysts

Indian stock markets are giving too much importance to the pending trade deal with the United States (US) and are failing to price in the benefits from the India–EU trade deal and free trade agreements (FTAs) inked with other countries, suggest analysts. 

 

Investors, believe analysts at Incred Research, remain fixated on the near $40 billion of Indian exports exposed to US tariffs, while overlooking that, within the next two–three quarters, meaningful alternative demand can be built in Europe.

 

“Indian equity markets have effectively gone sideways for the past 12–15 months, with many stocks correcting 50–60 per cent from their highs. This has created a valuation disconnect: the market is almost entirely ignoring the India–EU trade deal, which would create a $25 trillion GDP free-trade bloc spanning nearly 2 billion people,” wrote Satish Kumar, managing director (MD) and head of Incred Research Services. 

 

India’s exports to the EU, Incred suggests, are already comparable to those to the US, and within two–three quarters, supply chains can pivot meaningfully toward Europe. 

 

"If the EU remains strategically constrained by China and fails to secure a comprehensive FTA with the US, India stands to gain a clear first-mover advantage—making today’s Trump-driven pessimism a classic mispricing rather than a fundamental threat," Kumar wrote.

 

G. Chokkalingam, founder and head of research at Equinomics Research shares a similar view. Besides the pending trade deal with the US, he feels that the markets are overly worried about the global geopolitical situation as well.

 

"Despite aggressive tariffs by the US, India’s goods exports are not impacted too badly. Further, India is also set to benefit from the free trade agreements (FTAs) signed with several global economies. Strengthening trade relationships with China and possible signing of FTA with the European Union would, to a large extent, mitigate adverse impact of US tariff war against India," Chokkalingam said.

 

Markets, he believes, are not giving due importance to these facts and keep falling. Depreciating rupee, he said, is also denting sentiment. "Liquidity constraints adding further pressures to retail investors who largely invest in small-and mid-cap stocks," Chokkalingam said.

 

Lack of clarity on the deal has also kept foreign institutional investors (FIIs) on the edge as regards the Indian markets. Since the steep tariff of 50 per cent was announced by Trump in August 2025, foreign portfolio investors (FPIs) have pulled out nearly Rs 95,000 crore from the Indian equities.  

 

While the Sensex and Nifty have returned a modest 1.7 per cent and 2.4 per cent since August 2025, the smallcap and midcap indexes on the BSE have slipped 9.4 per cent and 1.7 per cent respectively during this period, data shows.

 

That said, external headwinds from higher US tariffs, UBS said, were somewhat offset by resilient domestic demand, adjustment in direct and indirect taxes, front-loading of government capital expenditure and supportive monetary policy. 

 

As a strategy, UBS still remains underweight on Indian equities in the emerging market (EM) context.

 

"A 50 per cent trade tariff with the US (if persists) could drag gross domestic product (GDP) growth by around 50 basis points (bps) in FY27E. We remain underweight on India despite a stark underperformance compared to EM in 2025 on current weak nominal GDP growth trend, MSCI India's fundamentals tracking weaker than the rest of EM, lack of clear artificial intelligence (AI) beneficiaries in the listed space, and high valuation,” UBS said in a recent note.