The latest trade deal announcement between India and the U.S. has set an interim framework for reciprocal trade alignment, marking a significant milestone in India–U.S. bilateral relations. The deal aims to enhance market access, reduce tariffs, and foster economic cooperation for both partners amid global supply chain realignments. The policy addresses longstanding trade imbalances, with the U.S. benefiting from India’s intention to purchase over $500 billion of U.S. goods over five years, including energy (with the U.S. acting as a substitute for Russian oil), technology and industrial products, and agricultural goods. At the same time, India is expected to gain competitiveness relative to regional peers due to lower tariff rates, with zero tariffs on critical sectors such as pharmaceuticals, gems, agriculture, and industrials. With this deal, India’s exports to the U.S. are forecast to cross $100 billion in the near future.
The trade pact has injected optimism into the Indian economy, with economists projecting an upgrade in the FY27 GDP forecast by 20–30 basis points. Recently, the RBI upgraded Q1 and Q2 FY27 GDP growth to 6.9% and 7.0%, respectively. Stock markets reacted positively, with the broader market rising 2.7% on the announcement day, driven by strong relief rallies. The Indian rupee also benefited, appreciating to below the 91 marks. Traditional sectors such as textiles, gems and jewellery, aquaculture, and industrial stocks performed well. This development has paved the way for an improved future outlook, with the easing of one of India’s biggest global headwinds. Overall, the deal represents a win-win situation, even though it provides advantages to the U.S. through greater access to the Indian market, which will work well for domestic consumers. The agreement incorporates rules of origin, addresses non-tariff barriers, and removes India’s digital services tax.
Foreign Institutional Investors (FIIs) have shown renewed interest in Indian equities following the deal. After being net sellers of approximately ₹50,000 crore during December and January, FIIs have turned net buyers to the tune of ₹17,000 crore this month. Sustained FII inflows are expected in 2026, compared to net selling of ₹1.6 lakh crore in 2025, provided the deal’s implementation proceeds smoothly. Key risks to monitor include potential U.S.–Iran conflict, a global sell-off driven by AI-related disruptions, and likely appreciation of the U.S. dollar in 2026.
A significant portion of the gains from the trade deal is expected to materialize in 2027 rather than 2026. This outlook is based on the finalization of the interim U.S.–India deal in March, the signing of a comprehensive agreement in 2027, implementation of the EU–India FTA in 2027, and updates to the U.S. Supreme Court verdict on Trump’s trade policy.
In the near term, other factors affecting India’s performance include modest Q3 earnings relative to estimates and, more importantly, the global technology sell-off. Q3 earnings are not expected to have a significant impact, as the outlook is shifting toward FY27 earnings, where the environment has improved compared to FY26. However, the global sell-off has affected the Indian IT sector, which accounts for around 10% of India’s total market weight and a sentimental bias to a profit booking in the broad market post US-India deal gains.
Indian IT companies have been among the most impacted due to their labour-arbitrage-driven business model, which is vulnerable to rapid AI developments syndrome. Indian IT peers largely do maintenance job of technology products and services rather than owning software, infrastructure and consulting platforms. The outlook for the Indian IT sector has remained weak over the past 15 months due to subdued U.S. IT spending amid high interest rates. This trend is expected to continue, with modest FY27 and FY28 revenue growth estimate of between 6–8% for the large six IT players. This muted IT stock performance is likely to persist in the near term, as industry valuations remain elevated at one-year forward P/E of around 20x, despite the modest business outlook. Additionally, greater clarity is required to understand the real long-term impact of the disruptive AI developments on Indian IT service providers.
The author Vinod Nair is the Head of Research, Geojit Investments Ltd.
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