In a landmark development overnight, the United States has reached an agreement with India, which could put an end to an elongated period of uncertainty and could provide the much-needed impetus the market needed, say brokerages heading into trade on Tuesday.
The deal, which includes the rollback of US tariffs against India from 50% to just 18% and a commitment from New Delhi to increase imports from the US by $500 billion, as well as reduce dependence on Russian oil, is expected to reshape the market, according to analysts from BofA and Citi.
Analysts from these two brokerages suggest the agreement will effectively put an end to significant tail risks and position India as a primary beneficiary of the 'China+1' manufacturing strategy.
What Does It Mean For Indian Markets?
Market Sentiment and Capital Inflows
Indian equity markets are expected to react quite positively as the deal completely eliminates key policy uncertainties. Citi notes that the positive sentiment could trigger immediate foreign capital inflows, potentially turning India's Balance of Payments (BoP) position.
The impact doesn't stop there. The trade deal may also go a long way in stabilising the rupee and easing pressure on domestic interest rates.
Meanwhile, the 'wealth effect' from a surging stock market is expected to trickle down to the broader economy. This, in turn, could serve as a boost to urban consumption, Citi reported, suggesting that increased investor confidence will drive discretionary spending.
Sectoral Impact and Tariff Reductions
Another key element of the US-India trade deal is the sheer impact it will have on various sectors. As noted by BofA, the effective tariffs will drop from approximately 35% to just 12-13%, thus providing a lifeline for labour-intensive sectors such as textiles, gems and jewellery and engineering goods, all of which have recently faced growth headwinds.
Moreover, the deal clarifies policies surrounding high-growth sectors, including semiconductors and mobile phones, as it would streamline trade flows for critical components, while data centres and GCCs may also come into focus, in light of the enhanced protections for India's service exports and digital infrastructure.
As far as energy is concerned, India will pivot away from Russian crude oil in favour of imports from the US and Venezuela, following the removal of Russian oil-related penalties, reports BofA.
Economic Outlook
Finally, on the economic front, BofA signals upside risks to its 6.8% GDP growth projection for FY27, citing the trade deal as a primary driver. While the Reserve Bank of India is expected to maintain current interest rates, the deal provides the fiscal 'breathing room' necessary to manage liquidity and support long-term industrial expansion.
With the threat of protectionism against India's service exports largely neutralised, the deal could go a long way in cementing India's role as a stable, high-growth alternative in the global supply chain.
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