India–US Trade Deal: A Turning Point for Markets & Manufacturing Sector

After months of uncertainty, the long-awaited India–US trade deal has finally landed — and the markets have wasted no time reacting. On 2nd February US president Donald Trump announced the lowering of tariffs on Indian exports to 18%. Following this announcement positive investor sentiments drove the Indian stock market up.

A decisive breakout above the 25,500 mark on the Nifty 50 is widely expected, with the Sensex also poised to retest record highs. The logic is simple: markets discount future earnings, and lower tariffs directly improve export competitiveness, margins, and order visibility.

The deal, announced by Donald Trump on Truth Social, removes the additional levy imposed over India’s Russian crude purchases and signals a broader reset in bilateral trade relations. India committed to buying large scale energy imports of US agricultural, technology, and energy products. While finer details are still being negotiated, investors are already positioning for the upside.

From a sectoral standpoint, export-oriented industries stand out as clear winners. Textiles, apparel, auto ancillaries, engineering goods, specialty chemicals, gems and jewellery, and agro-exports are expected to benefit immediately. Labor-intensive sectors, in particular, could regain ground lost to regional competitors like Vietnam, Bangladesh, and Pakistan — all of whom now face higher or comparable tariff rates than India.

Manufacturing is another big beneficiary. With India having also signed a landmark free trade agreement with the European Union just days earlier, the country is rapidly integrating deeper into global supply chains. This twin-deal momentum strengthens India’s relative positioning versus China and aligns it more closely with ASEAN peers — a shift analysts at Bernstein have called “incrementally a big positive.”

Financials, IT, and telecom are also firmly on investor radars. Improved India–US relations reduce the risk of regulatory or tax-related headwinds for IT services, a sector with deep US exposure. According to Bernstein analysts, even short-term diplomatic stability can ease scrutiny and support earnings visibility, making IT a tactical buy in the current setup.

Pharmaceuticals deserve special mention. While the US deal boosts export sentiment, the EU agreement goes further by eliminating tariffs on several drug categories. Fitch Ratings sees this as a catalyst for reviving India’s pharma export growth, citing lower costs, streamlined approvals, and access to a massive market that had become increasingly complex to navigate.

For investors, the bigger question is whether this rally is merely relief-driven or the start of a new leg higher. Early signals suggest the latter. With valuations having cooled, fundamentals intact, and foreign institutional investors likely to return, the trade deal removes a major overhang that had capped upside potential.