The deal removes a key overhang for Indian equities, given that US tariff risks were a key pressure point for the Indian equity market. For most of 2025, the absence of progress on US tariffs kept foreign investors cautious and led to India’s stock market lagging global and regional peers in 2025 after several prior years of outperformance.
“With the sharp cut in US tariffs from 50% to 18% in the US-India deal, and with this coming shortly after India sealed a landmark Free Trade Agreement with the European Union, the timing alone could reset investor sentiment and growth expectations significantly after a weak 2025.
“While the direct macro impact is modest at perhaps a 20bps uplift to GDP growth, there is far more meaningful impact on sentiment towards India as a market, given it draws a line under a period of significant uncertainty. Businesses within India can now start to plan again and hopefully start putting capital to work, supporting the long-awaited revival in the private sector capex cycle. Foreign investors, that have been largely absent from India, can start once again to make clearer assessments of investment opportunities in India.
“The biggest immediate winners are in India’s labour-intensive export base, where textiles, apparel, leather, gems and jewellery, toys, and furniture get more support and could regain ground lost to Vietnam and other more cost-competitive countries. Medium and smaller companies, which had borne the brunt of the 50% rate, also get some relief finally. Removing that overhang should also support banks, Non-Banking Financial Companies and export-oriented manufacturers, while lifting retail sentiment in small and mid-caps.
By James Thom, Senior Investment Director of Asian Equities at Aberdeen Investments.
