Indian equity markets witnessed a sharp surge following the announcement of the long-awaited India-US trade agreement, but the rally quickly lost momentum, leaving benchmark indices trading below their all-time highs.
On February 3, markets reacted positively after the United States agreed to lower reciprocal tariffs on Indian exports from 50% to 18%. The development was announced by former US President Donald Trump following a telephonic conversation with Prime Minister Narendra Modi.
Following the announcement, the Nifty 50 surged 5% to an intraday high of 26,341.20, while the Sensex rallied over 4,200 points to touch 85,871.73. However, the enthusiasm proved short-lived. As of February 11, the Sensex was hovering around 84,211 and the Nifty 50 near 25,946 — both still below their lifetime highs of 86,159 and 26,373 respectively.
Why Has the Rally Stalled?
Market experts believe that while the trade deal is structurally positive, several factors are preventing a sustained breakout.
1. Implementation Uncertainty
Vaqarjaved Khan, Senior Fundamental Analyst at Angel One, noted that the agreement remains a framework, with formal details yet to be finalised. Questions remain regarding commitments such as the proposed $500 billion procurement target, which India has not officially confirmed.
Additionally, sensitive clauses — including possible reductions in Russian oil imports and opening up agricultural markets — may face domestic political resistance.
2. Weak Earnings Momentum
Siddharth Maurya, Founder & Managing Director at Vibhavangal Anukulakara, said that markets ultimately move on earnings and liquidity, not just headlines.
“While the trade deal has improved sentiment and reduced geopolitical risk, earnings growth remains sluggish. Until quarterly numbers show meaningful recovery, markets are likely to trade in a range,” he explained.
3. Selective FII Participation
Foreign Institutional Investors (FIIs) have not returned aggressively despite the trade breakthrough. Liquidity remains selective, and global investors are waiting for stronger earnings visibility and macro stability.
4. Valuation Concerns
Pranav Koomar, Founder and CEO of PlusCash, highlighted that much of the optimism had already been priced in.
“Valuations remain elevated, leaving limited room for sharp upside. Markets are closely tracking domestic rate trends, global liquidity, and economic data,” he said.
5. Competitive Trade Landscape
Tanvi Kanchan, Head of Strategy at Anand Rathi Share and Stock Brokers, added that while the 18% tariff rate enhances India’s competitiveness against Vietnam and Bangladesh, many competing nations continue to enjoy duty-free access under the US Generalized System of Preferences (GSP), limiting India’s relative advantage.
She also pointed to global uncertainties — including weak US retail data and volatility in technology stocks — as dampening overall sentiment.
6. Global and Geopolitical Risks
Balaji Rao Mudili, Research Analyst at Bonanza, cited concerns ranging from disruptions in the global IT sector to geopolitical tensions involving Iran and potential oil price volatility as additional headwinds.
What Could Trigger the Next Rally?
Analysts agree that the foundation for a breakout is gradually forming — but confirmation is needed.
Markets are watching for:
- Clear implementation milestones under the trade agreement
- Tangible improvement in trade flows
- Stronger corporate earnings growth
- Stable rupee performance
- Sustained FII inflows
- Improved global risk appetite
“The market will react decisively when earnings validate the optimism,” said Kanchan. “Headlines alone are not enough.”
For now, the India-US trade pact remains a long-term positive, with meaningful benefits likely to be reflected in the second half of 2026 and FY27 rather than immediately.
Originally published on 24×7-news.com.
