Following the announcement of the India-US trade deal, the Sensex on Tuesday surged past 42,000 points, while the Nifty rose nearly 5 per cent, nearing its lifetime high of 26,373. This historic agreement is being considered as a game-changer for the Indian stock market. This is expected to reverse the massive FII sell-off of $34 billion since October 2024, the highest in an emerging market as about 41 per cent of total FII assets are in the US. Jefferies equity analyst Mahesh Nandurkar said in a media report that this is a big boost for investor sentiment. Automobile supporting companies, solar energy manufacturers, chemicals, textiles and Adani Group companies are likely to benefit significantly.
return of foreign investment
The deal will trigger immediate reparations for businesses, including banks, IT services, pharmaceuticals, industrial sectors (especially power transmission and distribution components, cables and conductors), defence, textiles and chemicals, which were directly and indirectly affected by the higher US tariffs.
Analysts suggest that from a sectoral perspective, export-oriented sectors such as IT services, pharmaceuticals, specialty chemicals, auto accessories and select engineering goods will benefit the most. Lower tariff barriers will improve the price competitiveness of Indian companies in the US market, which remains India’s largest export destination. Over time, this can lead to better order flow, margin stability and higher capacity utilization.
The deal enhances earnings visibility, supports valuation re-rating, especially for export-oriented and capex-linked sectors, and reinforces India as a relatively safe investment destination among emerging markets, Axis Securities said in its report.
Which sectors will benefit most? Labour-intensive sectors like textiles and gems/jewellery will clearly benefit, Nuwama said in a media report. The brokerage firm said these are the sectors that were most impacted by Trump’s 50% tariffs (pharma, electronics, etc. were largely exempt from the Trump tariffs). The firm further said that this will not only increase exports but will also create employment in India.
The trade deal is also expected to increase capital inflows into India and improve the country’s balance of payments. Nuwama said the Indian rupee is expected to strengthen, which has underperformed against emerging market currencies for more than a year. This will also improve the domestic liquidity situation.
Top stock selection after trade deal
Jefferies has included FII favorite stock ‘Eternal’ in its model portfolio, while increasing its allocation to the metals sector and reducing its exposure to the IT sector. Stocks with significant exposure to the US market include auto component companies like Sona Comstar and Bharat Forge, chemical companies like Naveen, PI Industries and SRF, solar energy companies like Vaari, Premier Energies and MMV, and textile companies like Welspun Living.
Axis Securities’ top positive stock picks include Dr Reddy’s Laboratories, Lupine, Aurobindo Pharma, Aarti Industries, Pitti Engineering, Kirlokar Brothers, Welspun Living, Sansera Engineering, Steel Strips Wheels, Infosys, HCL Tech and LTI Mindtree. Stocks that Axis Securities has dropped from its portfolio include Sun Pharma, Divi’s Laboratories, KPR Mills, Gokaldas Exports, Indo Count Industries, UPL, Bharat Forge, Samvardhana Motherson, Dixon Technologies and Sona BLW. According to Antik, sectors that could benefit include those in which FII holdings are high, such as real estate, telecom, transport, financial services and healthcare, as well as those where FII net long/short positions have been the weakest since September 2018, including capital goods, financial services, IT services and power utilities.
What is the expert advice?
Apoorva Sheth, head of market perspectives and research at SAMCO Securities, told ET that the market is expected to see a bullish move as many short positions in the system will be squared off. But for this trend to continue, we will need to see new long positions being formed. Sheth also warned not to expect miracles, saying in media reports that it should also be remembered that exports to the US are a small part of our $4 trillion GDP. So, yes, the trade deal is good for the economy and markets in the short term, but don’t expect miracles.
