India-US trade deal Impact: Narnolia's Shailendra Kumar anticipates multi-year re-rating in engineering, auto components, textiles, jewellery

Shailendra Kumar is the Chief Investment Officer at Narnolia Financial Services

• Deal removes primary geopolitical risk that was deterring FIIs
• Deal provides stability premium essential for businesses to plan aggressive long-term CAPEX
• Deal to trigger fundamental reallocation of global emerging market funds back into India

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Beyond the immediate beneficiaries, Shailendra Kumar, Chief Investment Officer at Narnolia Financial Services, anticipates a multi-year re-rating across sectors such as engineering, auto components, textiles, and jewellery after the United States finaliseda  trade deal with India.

He also sees improving prospects for companies pursuing technological tie-ups with US firms, particularly in areas like electronics and data centers.

He believes the deal removes the primary geopolitical risk that was deterring Foreign Portfolio Investors. "After significant outflows in late 2025, the deal will trigger a fundamental reallocation of global emerging market funds back into India, he said in an interview to Moneycontrol.

Do you think the US lowering reciprocal tariff rates on Indian goods can be a game changer for India?

The reduction of the US reciprocal tariff to 18% is indeed a structural game changer. Over the last 15 months, Indian markets have lagged behind global peers. While this initially stemmed from stretched valuations and a cyclical slowdown in earnings, the situation was severely exacerbated by the US imposing punitive tariffs.

The deal removes the primary geopolitical risk that was deterring Foreign Portfolio Investors. By securing a rate superior to many regional rivals, India has moved beyond mere trade concessions to a fundamental economic pivot. This provides the 'stability premium' essential for businesses to plan aggressive long-term CAPEX, finally decoupling Indian manufacturing growth from geopolitical uncertainty.

Do you think this has more of a sentimental impact than a fundamental one?

While the deal is undoubtedly a major sentiment booster—restoring confidence after the 50% tariff cliff of late 2025—it is anchored in multiple critical fundamental shifts that will drive the Indian economy long after the initial market euphoria fades.

The reduction to 18% allows Indian exporters to sign long-term (3–5 year) supply contracts with US companies who were previously hesitant to commit due to tariff uncertainties. Global investor often cites "regulatory predictability" as their top concern.

By codifying an 18% reciprocal tariff and moving toward zero-duty corridors, India has effectively lowered the risk premium for investing in Indian factories.

Also, after significant outflows in late 2025, the deal will trigger a fundamental reallocation of global emerging market funds back into India.

Do you expect a strong comeback in the IT sector, which has remained range-bound for a long period?

Despite recent tailwinds from Budget 2026—such as tax certainty for software services—the Indian IT sector is still in a foundational 'base-building' stage. The industry is currently rewriting its core value proposition to be 'AI-first' rather than 'labour-first.'

While the transition is well underway, we expect a period of range-bound performance before the sector exhibits a sustainable breakout, driven by renewed enterprise spending and AI-led productivity gains.

Which other sectors are likely to be in the limelight following this deal? Do you advise adding them to portfolios now or waiting for stability?

Beyond the immediate beneficiaries, we anticipate a multi-year re-rating across sectors such as engineering, auto components, textiles, and jewellery. We also see improving prospects for companies pursuing technological tie-ups with US firms, particularly in areas like electronics and data centers.

Over time, the trade deals are likely to catalyze substantial FPI (Foreign Portfolio Investment) inflows, benefiting a broad set of high-quality Indian companies.

With the risk of “tariff shocks” giving way to a clearer “growth runway,” Indian investors should adopt a more constructive stance and increase exposure to high-quality domestic companies. That said, a degree of caution remains warranted in the mid- and small-cap space, where valuation multiples have yet to reach truly attractive levels.

Are you confident that earnings growth could surpass current expectations for FY27?

We anticipate an FY27 Nifty EPS of Rs 1,250, representing a 16% growth rate. Although the Banking and Consumer sectors have faced margin headwinds from interest rate movements and input cost inflation, a strategic turnaround is underway. We now view our 16% estimate as conservative, with clear potential for upward revisions as these large-cap margins stabilize.

Is India moving rapidly towards becoming a manufacturing hub following deals with the US and the EU?

India is currently in a state of accelerated transition, though its path differs significantly from the historical "China Model." While the stated policy goal remains reaching 25% of GDP from manufacturing, the actual current contribution hovers around 17%.

Rather than pursuing low-cost, mass-volume dominance across all sectors, India has shifted to a "Calibrated Hub" strategy focused on three pillars: Strategic Market Access (The US & EU Factor), High-Value Global Value Chains, and Insulation from Geopolitical Risk.

India-US trade deal secures a massive price advantage for our engineering, textile, and pharma sectors. EU FTA specifically targets labour-intensive sectors like leather, footwear, and apparel to compete with Vietnam and Bangladesh. Budget 2026 has specifically targeted high-value electronics and the related sector. And with energy re-alignment India has effectively bought long-term trade stability.

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