Indian rupee, stocks soar in relief rally after trade deal with US

India's financial markets rallied sharply on Tuesday after a trade deal that slashed US tariffs on Indian goods to 18 per cent from 50 per cent, 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, was up nearly 3 per cent and the rupee climbed over 1 per cent to 90.40 per dollar in early trading. The yield on the country's 10-year benchmark bond declined 5 bps to 6.72 per cent.

The Nifty rose as much as 5 per cent in early trading with the rise putting 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.

US 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 US 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.

"A successful bilateral trade agreement should help enhance investor confidence, boost foreign investment and capital expenditure plans while strengthening the Indian rupee," said Marcella Chow, global market strategist at JP Morgan Asset Management.

The trade deal is also expected to lift a pall of geopolitical uncertainty which had accompanied the US-India trade rift, keeping investors cautious on ploughing 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 US 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 per cent of traded goods by value.

Analysts at Jefferies expect Indian firms in the auto ancillary, solar manufacturing and chemicals sector to be among the largest beneficiaries of the US-India trade deal.

As part of the deal, India has agreed to buy petroleum, defence goods, electronics, pharma and telecom products as well as aircraft from the US, a government official told Reuters. "The reduction of the US tariff rate on most Indian goods will reinvigorate India’s export growth to the US," credit rating agency Moody's said in a note.

"Even though India has reduced its purchase of crude oil from Russia in recent months, it is unlikely to cease all purchases immediately which could be disruptive to India’s economic growth," the note added.

Indian refiners will need a wind-down period to complete Russian oil deals before imports can be halted and they have so far not been ordered by the government to do so, Reuters reported on Tuesday.

Shares of Reliance Industries, the oil-to-telecom conglomerate, were last up over 4 per cent, leading the advance in stock benchmarks.