Indian rupee, stocks soar after trade deal with US

India's financial markets rallied sharply on Tuesday after a trade deal that slashed U.S. tariffs on Indian goods to 18% from 50%, a development that investors said lifts a key overhang over the country's stocks, bonds and currency.

India's benchmark stock index, the Nifty 50 .NSEI, surged nearly 5%, about 100 points away from its record high hit in January. The rupee INR=IN climbed over 1% to 90.40 per dollar in early trading. The yield on the country's 10-year benchmark bond IN064835G=CC declined 5 bps to 6.72%

The Nifty's rise put it on course for the best one-day gain in five years while the rupee was on track for its best day since November 2022.

U.S. President Donald Trump announced the deal on social media following a call with Indian Prime Minister Narendra Modi, noting that India had agreed to halt Russian oil purchases and lower trade barriers on U.S. exports.

Indian stock markets and the rupee have been battered since the tariffs were levied by Washington in late August, placing them among the worst-performing emerging market assets in 2025, with record foreign investor outflows.

The trade breakthrough is expected to alleviate the persistent drag, with investors expecting a bounce-back in foreign sentiment and flows into Indian assets.

"We believe this trade deal announcement should lift a key overhang on Indian equities. Foreign investors who have been net sellers recently might also look to increase their weight to India in light of this announcement," said Prashant Paroda, portfolio manager with AllSpring Global's Intrinsic Emerging Market equities team.

The trade deal is also expected to lift a pall of geopolitical uncertainty which had accompanied the U.S.-India trade rift, keeping investors cautious on plowing money into the country.

"The key tail risk of geopolitical isolation about which investors were concerned has now been adequately addressed by back-to-back trade deals with the European Union and United States," economists at Citi said in a note.

The breakthrough with the U.S. comes less than a week after India signed a long-awaited trade deal with the European Union that is expected to eliminate or reduce tariffs on 96.6% of traded goods by value.

-Jaspreet Kalra/Reuters