Market Move Before and After US Trade Deal — What Changed on Dalal Street?

Indian stock markets witnessed one of the sharpest sentiment reversals in recent months after the announcement of the India–US trade deal, which slashed American tariffs on Indian goods from 50% to 18%.

Before the deal, markets were struggling under selling pressure, weak global cues, FII outflows, and export sector stress. After the deal, benchmarks delivered a power-packed rally, the rupee strengthened sharply, and export-linked stocks surged up to 20% in a single session.

This article breaks down how markets behaved before the deal, what changed immediately after the announcement, sector-wise reactions, investor flows, currency and bond market movements, and what lies ahead for Indian equities.

Why It Matters Today

The India–US trade agreement is not just a headline event; it is a structural shift for India’s export economy, market confidence, and foreign investor perception.

• It removes a major overhang that had weighed on markets for months.

• It revives earnings visibility for export-heavy sectors.

• It reopens the door for foreign fund inflows, critical for sustaining market momentum.

• It strengthens the rupee and improves macro stability, reducing pressure on inflation and the current account.

In short, this trade deal resets India’s global trade positioning, making it one of the most important market-moving events of 2026 so far.

Market Mood Before the US Trade Deal

1. Persistent Selling Pressure

Before the deal, Indian markets were locked in a phase of consolidation and volatility, driven by:

• High US tariffs on Indian goods

• Weak global risk appetite

• Heavy foreign institutional investor (FII) selling

• Pressure on export-oriented earnings

In January alone, foreign investors pulled out nearly $3 billion, continuing a broader outflow trend seen since early 2025. Export-driven sectors like textiles, apparel, engineering goods, pharma, and IT services were particularly impacted.

2. Export Sector Under Stress

With US tariffs at 50%, Indian exporters were at a severe cost disadvantage compared to peers like Vietnam and Bangladesh. This resulted in:

• Order cancellations

• Lower capacity utilisation

• Margin erosion

• Earnings downgrades

Several export-heavy companies reported 20–30% volume contraction, while market valuations in these sectors saw sharp cuts.

3. Weak Rupee and Rising Volatility

The rupee was under consistent pressure due to:

• Dollar strength

• Trade deficit worries

• Weak capital inflows

Volatility remained elevated as traders stayed cautious ahead of policy clarity. Market participants largely stayed on the sidelines, awaiting a positive trigger capable of reversing sentiment.

What Changed After the US Trade Deal Announcement?

On February 3, 2026, US President Donald Trump and Indian Prime Minister Narendra Modi jointly announced the long-awaited trade agreement, cutting tariffs on Indian goods to 18%.

This single headline completely altered market sentiment.

Immediate Market Reaction

Indian equities witnessed their strongest single-day rally in over eight months.

Benchmark Movement:

• Sensex surged 2,300–4,200 points intraday

• Nifty jumped nearly 5%, nearing all-time highs

• Broader markets—mid-cap and small-cap indices gained up to 3%

This marked one of the most powerful risk-on reversals since 2024.

Massive Sector-Wise Buying

Export-Oriented Sectors Lead Gains:

• Textiles & Apparel: Stocks like Gokaldas Exports surged over 40% in two sessions

• Pharma & Chemicals: Sharp buying on improved US access

• Engineering & Auto Ancillaries: Strong order-flow expectations

• IT Services: Initial surge, though profit booking followed later

Several stocks hit upper circuits of 20%, particularly in aquaculture, textiles, and garment manufacturing.

Rupee Strengthens, Bonds Rally

The currency and debt markets also reacted positively:

• Rupee strengthened over 1.2%, marking its best weekly gain in nearly seven years

• 10-year bond yields fell sharply, indicating easing inflation and growth confidence

A stronger rupee helps contain imported inflation, stabilise fuel prices, and support RBI’s monetary policy flexibility.

Foreign Investors Turn Buyers

After months of selling, foreign portfolio investors (FPIs) turned net buyers, pumping ₹5,236 crore in a single session, their biggest buying day in over three months.

This shift indicates renewed confidence in India’s economic outlook and trade positioning.

Market Behaviour: Before vs After the Deal

Will This Rally Sustain?

Market experts caution that headline-driven rallies often fade unless backed by earnings growth and sustained fund flows.

Historically, geopolitical or trade-related rallies:

• Deliver short-term spikes

• Need follow-through in earnings, exports, and FII flows to convert into long-term bull runs

If export orders rebound strongly and global liquidity remains supportive, this rally could evolve into a multi-month uptrend. Otherwise, markets may consolidate after the initial excitement fades.

Technical Outlook: Key Levels to Watch

From a technical perspective, analysts suggest that markets are currently in a strong momentum zone, but near-term consolidation cannot be ruled out.

• Nifty Support: 24,950 – 25,050

• Nifty Resistance: 25,550 – 25,800

• Sensex Support: 82,300–82,500

• Sensex Resistance: 84,000–84,500

A decisive breakout above Nifty 25,550 could open the doors for a rally toward 26,000–26,200 in the coming weeks, while failure to sustain above support may lead to range-bound movement.

Sector Outlook Post Trade Deal

1. Textiles & Apparel – Biggest beneficiary due to restored US competitiveness.

2. Pharmaceuticals—Improved access and pricing flexibility.

3. Engineering & Auto Components—Stronger export pipelines.

4. IT Services—Short-term boost, but valuation sensitivity remains.

5. Chemicals & Specialty Materials – Export-led growth revival.

What Investors Should Watch Next

1. Export order flow data

2. FII investment trend

3. Corporate earnings upgrades

4. RBI policy stance

5. Global risk sentiment

These factors will decide whether this becomes a durable bull phase or a short-lived rally.

Bottom Line

The India–US trade deal has delivered a powerful market jolt, reversing months of cautious sentiment and restoring optimism across equities, currency, and bond markets. While short-term volatility may persist, the medium-term outlook has turned decisively constructive, supported by improving export visibility, renewed foreign interest, and stronger macro fundamentals.

For investors, the focus should now shift from headline reaction to earnings delivery, export growth, and policy stability.

Frequently Asked Questions

Q1. Why did markets rise so sharply after the US trade deal?

Because tariffs on Indian goods were slashed from 50% to 18%, dramatically improving export profitability and investor confidence.

Q2. Which sectors benefited the most?

Textiles, apparel, pharmaceuticals, aquaculture, engineering goods, and chemicals saw the strongest buying interest.

Q3. Is this rally sustainable?

Sustainability depends on earnings upgrades, export growth, and continued foreign inflows.

Q4. How did the rupee react?

The rupee strengthened over 1.2%, its best weekly performance in nearly seven years.

Q5. Should retail investors enter now?

Investors should avoid chasing rallies and instead look for measured entries during consolidation phases.