India-US trade deal fine print meets expectations, markets already priced in best case scenario

Earlier tariffs of up to 50 percent had compressed margins and hurt competitiveness for Indian exporters with U.S. exposure.

• India and US reach interim trade deal, paving way for broader agreement
• US cuts tariffs on Indian goods to 18%, enhancing export competitiveness
• Sensitive agriculture sectors remain protected under the new trade framework

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India and the United States have reached a framework for an interim agreement on reciprocal and mutually beneficial trade, marking a key step toward a broader U.S.–India Bilateral Trade Agreement (BTA). After the trade deal was announced on February 3, the Indian markets were waiting for the fine print on the agreement, which has come along expected lines. The US removed the extra 25 percent tariff imposed on Indian goods over the country’s purchases of Russian oil. Further, tariffs were reduced to 18 percent overall.

Investors may have largely priced in expectations of tariff relief. "We believe markets have probably priced in the best case [scenario on the BTA]," said Barclays. "This sizable tariff reduction addresses the overhang across asset classes, now acting as a solid tailwind instead."

The agreement, along with recently concluded free trade agreements with the EU, UK, UAE and Australia, further brightens the growth outlook for the Indian economy. Lower U.S. tariffs, continued policy support for export-oriented, labour-intensive sectors and a widening FTA network are expected to support export growth, attract foreign portfolio inflows and aid currency stability over the medium term. That said, the positive impact is partly offset by a 5.4 percent depreciation of the rupee against the U.S. dollar over the past year.

Export-oriented sectors stand to see clearer benefits. According to Nomura, the slashing of U.S. tariffs to around 18 percent will immediately alleviate stress on labour-intensive export segments. The brokerage does not expect any policy rollback following the tariff reduction, adding that Indian exporters are now on par with competitors in Southeast Asia. Trade in products such as toys and furniture that was earlier being diverted to countries like Vietnam is likely to flow back to India.

For equities, the deal is viewed more as a sentiment positive than an immediate trigger. “The trade deal could offer a meaningful sentiment boost to equities; however, a sustainable, broad-based market recovery will also require an earnings rebound,” experts said.

Analysts also believe India was unlikely to significantly open up politically sensitive segments such as agriculture, which has remained protected. Nomura said India would have guarded these sensitive markets despite broader tariff concessions.

In a post on social media platform X, formerly known as Twitter, the Minister of Commerce and Industry Piyush Goyal said, "No concessions have been extended to sensitive agricultural sector produce in grains, fruits, vegetables, spices, oilseeds, dairy, poultry, & meat amongst many others while securing preferential access for Indian goods through the India-U.S. Interim Agreement framework."

Market experts cautioned that any liberalisation in agriculture could have uneven domestic effects. “Opening up agriculture to higher imports at negligible or zero tariffs could pose a drag on farmer incomes. Successful outcomes will depend on execution and stability in future trade terms,” said Ankita Pathak, Head – Global Investments at Ionic Asset.

Earlier tariffs of up to 50 percent had compressed margins and hurt competitiveness for Indian exporters with U.S. exposure. The tariff reset is expected to improve landed-price competitiveness, enhance order visibility and support margin recovery, shifting investor focus back to export-heavy sectors even as broader indices await clearer earnings momentum.