Indian equity markets continued their upward momentum on Tuesday, buoyed by investor relief following the India–US trade deal that reduces reciprocal tariffs and removes a key source of uncertainty that had weighed on sentiment for months. The agreement has been widely interpreted as a structural positive, particularly for trade-linked sectors, and has drawn strong reactions from market participants.

Veteran investor Madhusudhan Kela characterised the deal as a “true Diwali” for markets, capturing the celebratory mood among investors. His remarks echo a broader view that the agreement is less about immediate earnings impact and more about restoring confidence in India’s external trade environment. For equity markets, the removal of tariff-related uncertainty is often as important as the tariff cuts themselves.

The context to the rally lies in the prolonged trade friction between India and the US, which had resulted in elevated tariffs on select goods and created unpredictability for exporters and multinational companies operating across both markets. The latest agreement, by addressing reciprocal tariff issues, effectively clears this overhang and improves visibility for businesses planning cross-border investments and supply chains.

What is changing now is the risk perception. With trade tensions easing, investors are reassessing sectors that had been under pressure due to export uncertainty or cost disadvantages. Market participants noted broad-based buying rather than narrow leadership, indicating that the rally is being driven by improved macro confidence rather than short-term positioning. Financials, industrials and export-oriented names were among the beneficiaries as sentiment turned decisively positive.

Why this matters for India is linked to its integration with global trade flows. The US remains one of India’s largest trading partners, and clarity on tariffs has implications for sectors ranging from manufacturing to technology services. A more predictable trade framework supports capital inflows, strengthens supply chain planning and reinforces India’s positioning as a stable economic partner amid shifting global alliances.

From an investor perspective, the deal also reduces headline risk. Trade disputes often lead to sudden policy shifts and retaliatory measures, which can disrupt earnings assumptions. By resolving a long-standing issue, the agreement allows investors to refocus on domestic fundamentals such as consumption trends, capital expenditure and corporate balance sheets. Market commentary following the announcement suggests that this clarity has encouraged incremental allocation to Indian equities.

While official statements have highlighted the diplomatic and economic significance of the deal, market voices have focused on its sentiment impact. The positive reaction suggests that investors had been discounting a degree of trade risk, which is now being unwound. Details of the agreement and its implications have been shared through government communications, reinforcing transparency around the policy shift.

Market Impact on India

In the near term, the easing of trade tensions has supported a risk-on environment, contributing to gains across benchmark indices. Reduced tariff uncertainty may also support foreign portfolio flows, particularly into export-linked and manufacturing sectors that stand to benefit from smoother trade relations.

Sector Impact

Export-oriented industries, including industrial manufacturing and select consumer segments with overseas exposure, are likely to see improved sentiment. Technology and services sectors may also benefit indirectly from a more stable bilateral trade environment, even if immediate tariff effects are limited.

Bull vs Bear Scenario

The bullish case assumes that the trade deal leads to sustained improvement in bilateral economic engagement, supporting earnings visibility and capital inflows. In this scenario, markets could continue to re-rate as policy risk premiums compress.

The bearish view cautions that while sentiment has improved, the actual economic impact will depend on implementation and broader global demand conditions. Any delays or geopolitical flare-ups could temper the rally.

Risk Section

Key risks include potential gaps between announcement and execution, global macro volatility, and shifts in US or Indian trade policy priorities. Markets will also watch for sector-specific impacts to assess whether optimism translates into tangible earnings gains.

Overall, the enthusiastic response from market veterans such as Madhusudhan Kela underscores the importance of policy clarity for investor confidence. The India–US trade deal has acted as a catalyst, rekindling optimism and reinforcing the view that reduced external uncertainty can unlock broader market participation.