Will India-US trade deal draw FPIs back to Indian markets?
What's the story
The recent India-US trade deal is expected to have a positive impact on the Indian equity market, according to Antique Stock Broking. The brokerage believes that the agreement could end a 15-month-long overhang on Indian markets and improve visibility for equities. This comes at a time when valuations have normalized compared to global peers.
Investor impact
FPI outflows may reverse
The report highlights that the trade deal could be a major boost for Indian equities. It notes that foreign portfolio investor (FPI) equity outflows of $34 billion since October 2024, the highest among emerging markets, may now reverse. The US accounts for nearly 41% of total FPI assets under custody (AUC) in India, making improved bilateral trade relations critical for capital flows.
Market conditions
Valuation premium normalizes
Antique also notes that India's valuation premium over other emerging and developed markets has come down to long-term averages. This further strengthens the case for renewed foreign inflows. The optimism follows an announcement by US President Donald Trump, who said on his social media platform Truth Speak that reciprocal tariffs on Indian goods have been sharply reduced from 25% to 18%. In return, India has committed to reducing tariffs and non-tariff barriers on American goods to zero.
Future expectations
Sensex jumps 3% on trade deal optimism
Market participants are now closely watching the formal announcement of the deal and its implementation timeline. Clarity on sector-specific benefits could further influence equity flows and broader market direction. The India-US trade deal has been viewed as a reduction in external risks and a signal of policy stability, with the benchmark Sensex opening trading on February 3 with a 3% jump.
Market response
Positive impact on IPO market expected
The India-US trade deal could also have a positive impact on the IPO market, which is sensitive to secondary market conditions and foreign investor participation. Investment bankers tracking deal pipelines are optimistic that better sentiment could revive stalled IPO plans. Axis Securities has identified export-oriented sectors with significant US exposure as likely key beneficiaries of improved stock market sentiment.