FPI outflows may slow following India-US trade deal, export sectors in focus: Jefferies

Tariffs on India's exports into the US go down from 50% to 18%.

• India-US trade deal lowers tariffs on exports, boosting key sectors' outlook
• Jefferies favors metals, stocks like Hindustan Zinc and JSW Steel in portfolio shift.
• Deal may strengthen rupee and attract foreign portfolio inflows

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Stocks and sectors with significant exposure to the US, or sensitivity to potential changes in crude sourcing, include auto components, chemicals, solar manufacturers, and textiles are in focus following the India-US trade deal, according to international brokerage Jefferies.

The India–US trade deal, which lowers effective tariffs on Indian exports from 50% to 18%, addresses one of the biggest overhangs troubling investors and could materially improve the outlook for export-oriented and labour-intensive sectors.

India had been facing elevated tariffs since September 2025, comprising a 25% reciprocal levy and an additional 25% linked to Russian oil trade. The revised tariff rate is now 1–2 percentage points lower than key competitors such as Pakistan and Vietnam, restoring India’s competitiveness in sectors like textiles, leather goods, gems and jewellery.

While the deal is structurally positive, analysts are watching for details around concessions made by India and potential risks from a surge in US imports. In particular, if the landed cost of oil or gas imported from the US turns out to be higher, it could be a negative for oil marketing companies.

The agreement also improves the macro narrative for India at a time when external concerns had begun to dominate investor thinking. The US remains India’s largest goods export destination, accounting for $87 billion, or 18% of total exports. With tariff uncertainty now easing, the outlook for employment-heavy sectors such as textiles has improved meaningfully. Combined with recently signed free trade agreements with the EU, UK and other partners, Jefferies believes the deal could provide a near-term boost to the rupee, potentially acting as a trigger for renewed foreign portfolio inflows.

Foreign investors have remained cautious on India despite strong market performance. Indian equities outperformed the MSCI Emerging Markets index by 28 percentage points in 2025 and a further 14 percentage points in January 2026 in dollar terms. Persistent concerns around the lack of AI exposure, a weak INR, and the absence of a US trade deal led to sustained FPI outflows of $34 billion over the past 16 months.

Jefferies’ analysis of 63 EM funds managing $330 billion in assets shows India is now underweight versus benchmarks, with nearly 60% of funds underweight the country — a positioning that could reverse if currency and trade concerns abate.

Against this backdrop, Jefferies has announced changes to its model portfolio. The brokerage has trimmed its IT exposure and increased allocation to metals, moving materials to overweight after recent weakness.

Hindustan Zinc is preferred for its attractive zinc and silver exposure and strong cost advantages, with spot silver prices around 50% above the December quarter average and EBITDA expected to grow 41% in FY27. JSW Steel is also favoured, with earnings expected to improve sharply on the back of higher domestic steel prices following safeguard duties and China’s anti-involution measures.

Jefferies has also replaced Godrej Consumer Products with Eternal, citing strong growth and margin improvement across quick commerce and food delivery. With Eternal's stock trading around 25% below its peak, the brokerage sees an improving risk-reward profile.

Overall, the India–US trade deal is seen as a key catalyst that could reshape investor sentiment, strengthen the rupee outlook, and set the stage for a reassessment of India’s positioning within emerging market portfolios.

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