Interim Trade Pact Signed (India-US Deal) – Is Dalal Street Ready for the Fallout?

After extensive negotiations, the deal establishing the framework for the interim trade pact has been finalised, providing the first concrete outcome for the India-US trade deal. From February 6 to February 7, 2026, the interim trade pactwas established, marking an important step forward in the bilateral trade relationship between the two largest democracies.  

President Trump, along with Indian Prime Minister Modi, has taken one more step toward resolving their trade differences. For the first time, the US reduced tariffs on Indian goods to an equal 18% (down from punitive levels of 50% that included penalties for purchasing Russian oil from India). India, in return, has committed to the removal or significant reduction of tariffs on a wide array of US industrial goods, agricultural products, and major purchases of US energy, US aircraft, and US technology valued at $500 billion over five years.

The latest trade agreement newsis starting to impact global markets. The main concern in India is the impact on Dalal Street- will the reaction of the Indian stock market be positive enough to outbalance the expected fallout? With export stocks India expected to do well. Let’s explore the details, market reactions, sector winners, and the risks involved. 

 

 

India-US Trade Deal: What’s in the Interim Trade Pact?

The interim trade pact is expected to develop into a full Bilateral Trade Agreement (BTA), the negotiations for which started in February 2025. The joint White House statement describes the absence of trade, resilient supply chains, and non-tariff barrier agreements as mutually beneficial.

Important commitments from the US:

- Applies an 18% reciprocal tariff on Indian originating goods in the range of textiles and apparel, leather and footwear, plastics and rubbers, organic chemicals, home decor, artisanal, and some machinery.

- Removes and/or eliminates reciprocal (previously higher) tariffs on some Indian high-value generic pharma, and aircraft parts and diamond exports to finalise the interim agreement.

- Removes some national security tariffs (e.g. aluminium, steel, and copper tariffs on aircraft parts) and takes automotive parts tariffs on India out of the national security frame, establishing a preferential tariff rate quota.

- Outcomes of India-US cooperation on pharmaceuticals are based on Section 232 investigations.

India's commitments:

- Eliminate tariffs on a broad range of US industrial goods and food/agricultural products, including dried distillers’ grains (DDGs), red sorghum for animal feed, tree nuts, fresh and processed fruit, soybean oil, wine and spirits, and others.

- Reduce imports of oil from Russia and increase imports from the US (and aligned countries) energy sources.

- Commit to a $500 billion purchase over the next five years of energy products, aircraft/aircraft parts, precious metals, technology products (e.g. GPUs for data centres and AI), and coking coal from the US.

- Address non-tariff barriers in the field of medical devices, ICT goods, food/agri products, and establish rules of origin that favour bilateral trade, and cooperation on supply chain resilience, digital trade, export controls, and countering non-market policies.

Union Minister Piyush Goyal says India will start Tariff reductions in March 2026 and Non-Tariff Barriers (NTB) discussions will be six months after. Goyal highlights dairy and agriculture products, GM imports will be banned and Indian farmers will not be impacted.

This agreement will be a commercial success for both countries. India will get access to US products due to India’s 1.4 billion consumer market, and India will expand its trade to above $30 trillion US economy. This will also increase US trade with India. This will also shift trade from China, Russia and other dependent countries to the US.

Dalal Street’s Implementation: Market Opening, Positive Optimism

Dow’s and Dalal Street’s India-US Trade Deal will give trade relief to India due to the markets being open on 9 February 2026. The market was up to 9,000 points to the 7 February 2026 announcement, due to the previous 7 February 2026 market being. Daily reports give BSE Sensex a 4,200 daily increase to 11,500 on 11 February and an increase of above 9 to 20,649 daily Sensex. 

Analysts and brokerages classified this as a 'sentiment booster', which clears the uncertainty around punitive tariffs (25% reciprocal + 25% punitive for Russian oil). If FII inflows are expected to pick up, the rupee may appreciate, and the visibility in earnings has increased for companies with high exports. This has improved the overall market sentiment with over 30 export-linked stocks in focus and the pharma, textiles, and gems sectors have recorded up to 20% in some stocks.

The impact on the Indian stock market shows the relief after a long period of uncertainty. This deal gives India an advantageous position in the emerging markets with the lowest effective tariffs from the US, creating an opportunity for the supply chain (China +1 strategy) and increasing the competitiveness of 'Make in India'.

Impact of the Indian Stock Market on Export Stocks India: Major Beneficiaries

The largest immediate beneficiaries are export stocks in India targeting the US market. An increase in competitiveness for Indian exporters is expected due to a reduction in tariffs, which increases pricing and margin, along with the order books for Indian exporters.

• Textiles, Apparel, Leather & Footwear: New 18% US tariffs (decreased from higher tariffs) are competitive against competitors such as Bangladesh/Vietnam. This is expected to bring significant benefit to the MSME cluster in Tirupur, Ambur, and Agra. We anticipate both a rise in volume and an increase in margins.
• Gems, Jewellery, and Diamonds: More duty access is likely to help exporters in Surat and Mumbai.
• Pharmaceuticals (Generics): US linkages help the filings and API players. Aerospace parts and component suppliers will benefit from the abolishment of tariffs and quotas.
• Chemicals, Plastics and Rubber, Organics, Machinery, Auto Parts: Better access and competitiveness for engineering and defence-linked players.
• Others: Home decor, handicrafts, and some high-tech products.

The broadest beneficiaries include manufacturing, auto ancillaries (parts quota), and IT (with digital trade rules). Analysts expect a foreign institutional investment rotation to export-linked stocks and have shortlisted over 20 stocks in these sectors.

The impact on the Indian stock market will reach mid- and small-caps in these clusters. US orders are expected to provide a potential re-rating. Gains are likely to be front-loaded and will depend on execution and the full Bilateral Trade Agreement.

 

 

Trade Agreement News Impact and Scope Towards Full BTA

This new trade agreement news has an impact beyond pricing. It will strengthen partnership and support countering China in supply chain issues and will open avenues in digital trade, investment screening and technology (GPUs, AI data centres) partnerships, data and technology cooperation. India's commitment to buy ($500 Billion) shows seriousness and US market access will add Indian exports worth a billion each year. 

The interim agreement gives some certainty on tariffs (these will be in effect) and will reduce the headline risk that has been weighing on the provided BTA access. This interim agreement will help India’s aspiration to be the third-largest economy and help the US’s need for firm energy and technology purchases and open housing for Americans.

The Possible Consequences Is Dalal Street Ready Again?

The rally gives reason for some optimism, but “fallout” in the title reminds us there are still a few hurdles for Dalal Street to overcome:  

1. The Competition will Increase in Imported US Products: Indian tariffs on imports of US products (incl. industrial goods, agriculture (soybean oil, fruits, nuts, wine, DDGs, sorghum) and medical devices) will become lower. This will create competition for the Indian markets of dairy, processed foods, manufacturing and chemicals. Protective measures will be in place, but they will need to be vigilant in order to avoid a loss of market share or to avoid a drop in prices.

2. Geopolitical/Energy Dependence: Transitioning from Russian oil to US oil or Venezuelan oil may increase input costs for refineries due to expensive oil imports, which affects the profit margin in the oil marketing and stocks sector. The $500 billion over 5 years (approximately $100 billion annually) is highly risky and bold and is likely to hurt the foreign exchange market if not accompanied by an increase in exports.

3. Snap Back Risks and Conditionality: Tariffs may be modified due to changes in commitments. The outcome in the pharmaceutical sector will result from the investigations. The benefits will be reversed if there is non-compliance or changes.

4. Short term vs Long term: For some sectors, there will be front-loaded volatile short-term export gains, but there will be competition from imports and high energy costs. Critics from the opposition have described it as “one-sided”, which could justify policy debate.

5. Market Overreaction: Should the full BTA be delayed or negotiations appear stuck, confidence may wane and the central bank’s policies may disproportionately impact the rupee. Weak demand from US inflation and Fed policy will impact the rest of the world.

As we ramp up exports and deepen our supply chains, over time, the expected outcome will be positive, but in the short run, players in the sectors that face export competition will experience difficulties if they are unprepared. There is likely a positive impact from this, and from a dip in the uncertain import-competing sectors, we will likely be unprepared as we will experience a short dip in the competing sectors on the importing side if there is a quick ramp in exports, and the competing sectors will take a short dip.

 

 

Conclusion

The interim trade 'pact' between India and the US trade deal is positively impacting the Indian stock market. It is showing a strong reaction on Dalal Street and shining a spotlight on India’s export stocks. The positive impact of this deal includes tariff relief, market access, and India’s growing potential in FII, supply chain, and overall economic growth.

There will be impacts from this pact regarding import and energy costs, and investors need to be prepared for the various consequences. Investors need to prepare for impacts on exports in textiles, pharmaceuticals, gemstones, chemicals, and aviation while monitoring the domestic impacts. Formal signing is expected in March, and this deal will change India’s relations with the US.

Dalal Street is expected to show strong performance with the trade details, and the necessary reforms will be visible in how it deals with all the upcoming changes. Developments regarding the trade agreement news are expected in the next few weeks.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.