India and the United States are poised to announce a significant bilateral trade agreement by the end of November, marking a major breakthrough in trade relations between the two nations. According to multiple reports, the long-awaited deal has been nearly finalized and may not require additional negotiation rounds.
Key Components of the Proposed Trade Deal
The trade agreement will see India allowing duty-free imports of soybean, corn, and select dairy products from the United States. This concession represents a substantial shift in India's agricultural import policy and could significantly benefit American farmers. The development comes after extensive negotiations between trade representatives from both countries.
Currently, US tariffs on Indian goods stand at a substantial 50%, which has been a major factor behind the volatility observed in Indian stock markets throughout this year. The potential reduction of these tariffs to the 15-16% range would provide considerable relief to several key Indian export sectors.
Market Reaction and Sector Analysis
According to market experts, while the trade deal represents a positive development, much of the optimism appears to be already priced into the market. Ajit Mishra, Senior Vice President of Research at Religare Broking, noted that recent market movements suggest insiders may have already anticipated this development.
"It will definitely be a positive development. Sentimentally, we should see some reaction in the market. However, recent market movement suggests that some of this optimism may already be factored in," Mishra stated.
The expert anticipates selective buying in previously underperforming sectors, specifically mentioning textiles, gems and jewellery, and electronics manufacturing services (EMS). Companies involved in mobile exports to the United States could see particular benefits from the agreement.
Expert Perspectives on Market Impact
Shrikant Chouhan, Head of Equity Research at Kotak Securities, provided detailed analysis on potential tariff scenarios. He believes that tariffs between 15-25% are likely partially priced in by the market, while rates exceeding 25% could negatively impact market sentiment. Conversely, tariffs falling below 15% would create strongly bullish conditions.
"Key export-oriented sectors such as pharma, textiles, and gems and jewellery stand to benefit if tariffs remain below 20%. For the IT sector, clarity has improved after President Trump's assurance of no stricter stance on H1B visas - a significant positive," Chouhan explained.
Chouhan also expressed optimism about market performance, suggesting that the Nifty 50 could potentially test the 27,000 mark, supported by resilience in technology and banking, financial services and insurance (BFSI) sectors.
Broader Economic Context and Foreign Investment
The potential trade deal announcement comes at a time when domestic market sentiment shows improvement. After a decent second quarter, earnings are expected to recover further from the third quarter, with supportive macroeconomic fundamentals.
However, foreign institutional investor (FII) flows have remained inconsistent. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that FIIs maintain cautious stance due to India's relatively higher valuations compared to markets like Taiwan and South Korea, despite recent underperformance.
Vijayakumar also highlighted that hedge funds have been significant sellers in the Indian market, redirecting investments toward artificial intelligence (AI) trades. The current correction in AI stocks could potentially benefit Indian markets as this trend stabilizes.
Market participants will closely monitor the final agreement details, particularly regarding potential compromises and new advantages gained by India. The government's stance on agriculture-related provisions will be especially crucial, as the specific terms could determine whether the deal exceeds market expectations or merely meets them.
