Trade Pact Enthusiasm Propels Indian Markets to Nine-Month High
Indian equity benchmarks have delivered their most impressive weekly performance in thirty-eight weeks, emerging as the world's top-performing major market following the announcement of a breakthrough US-India trade agreement. The optimism surrounding the long-awaited pact has injected fresh momentum into Dalal Street, even as specific details of the agreement remain undisclosed.
Volatile Week Sees Extreme Market Swings
The Nifty 50 and Sensex both surged approximately 3.5% during a week that included a special Sunday trading session for the Union Budget presentation. Currently, the Nifty 50 stands at 25,693.70 points while the Sensex trades at 83,580.40 points. According to market analysis, this represents the benchmarks' strongest weekly showing since mid-May 2025.
However, this rally was accompanied by significant turbulence. The frontline indices experienced both their steepest single-day decline and most substantial single-day advance in nine months within the same trading week. Investors were simultaneously processing two major triggers: the Union Budget announcements and the breakthrough in US-India trade negotiations.
Budget Day Volatility and Foreign Investment Shifts
Market volatility peaked dramatically on Budget Day, February 1st, when both benchmarks plummeted nearly 2%. Investors perceived the government's fiscal proposals as lacking sufficient stimulus to accelerate economic growth. Additionally, an unexpected increase in the securities transaction tax on derivatives trading further dampened market sentiment.
Financial experts expressed concerns that higher transaction taxes on futures and options could discourage foreign institutional participation at a time when overseas investors were already reducing their exposure to Indian markets. Foreign portfolio investors offloaded approximately ₹36,000 crore worth of equities during January before reversing course this week.
The sentiment shift became evident when FPIs injected ₹9,442 crore during the first week of February, following US President Donald Trump's announcement of a trade negotiation breakthrough with India. This development alleviated a significant uncertainty that had been weighing on markets, propelling the index upward by 2.5% on February 3rd alone.
Fear Gauge Declines as Global Markets Struggle
The India VIX, commonly known as Dalal Street's fear gauge, dropped 19% over the trading week, indicating a substantial reduction in risk aversion among investors. This decline suggests that trade-deal optimism bolstered domestic market sentiment even as a fresh innovation shock from artificial intelligence firm Anthropic rattled global technology stocks later in the week.
Consequently, major international markets concluded the week in negative territory, with the Kospi and Hang Seng indices ending their month-long winning streaks. India, benefiting from its relatively limited exposure to global AI development and supply chains, emerged as the standout global performer.
IT Sector Suffers Significant Setback
Information technology stocks emerged as the week's worst performers, with the BSE IT index declining nearly 7%. This downturn followed Anthropic's unveiling of new plugins for its Claude Cowork platform, which automate non-technical tasks across eleven different sectors. The development has sparked concerns about automation encroaching upon the core service offerings of Indian IT companies.
Approximately two-thirds of listed Indian technology stocks finished the week lower, with industry heavyweights Infosys Ltd and Tata Consultancy Services falling 9.2% and 8% respectively. While markets continue to evaluate the potential impact on IT firms, investment strategists warn that this development could structurally weaken India's technology sector unless companies adapt rapidly to the changing landscape.
Broad-Based Rally Across Other Sectors
The broader market staged a largely comprehensive rally despite the IT sector's struggles. Utilities and power stocks led the gains with nearly 10% weekly advances, followed closely by real estate with approximately 8% increases. Market analysts attribute this performance to expectations that power companies will benefit from surging electricity demand, particularly if the Budget's twenty-year tax holiday for data center investments attracts substantial capital inflows.
Market experts anticipate broader markets to consolidate around current levels in the coming week, with caution still prevailing amid elevated geopolitical uncertainty. Sectoral rotations are occurring rapidly in response to news developments and economic events, with analysts warning that adverse news flows could unsettle markets as valuation concerns and earnings weaknesses persist.
