A historic new chapter has been added to India-US bilateral relations. Following a significant conversation between US President Donald Trump and Prime Minister Narendra Modi, both countries have agreed on a major trade deal. The announcement of this deal has triggered a wave of enthusiasm across Indian stock markets. Under this deal, the US has reduced the tariff on Indian goods to 18%, a major change that serves as a positive signal for Indian exporters.
As soon as the markets opened on Monday, investors welcomed this news vigorously, causing the Sensex and Nifty to register record gains. This agreement not only promises to reduce trade barriers but also paves the way for deepening cooperation in strategic sectors like Energy and Defense.
Let’s understand the depths of this deal and its broader implications in detail.
What’s Happening?
In 2025, trade tensions between India and the US escalated when the US administration imposed an additional 25% punitive duty on top of the earlier 25% reciprocal tariff, which combined reached 50% and was impacting Indian exports. The US argument was that India’s purchase of Russian oil provides economic aid to Russia, thereby fueling the Ukraine war.
However, a trade deal between India and the US was formally agreed upon on Monday, February 2, 2026. This deal was announced following phone talks between US President Donald Trump and India’s Prime Minister Narendra Modi.
In the new deal, this high tariff has been reduced from 50% to 18%, and an agreement has also been reached to remove penalties related to Russian oil. In exchange, India has expressed commitment to stop buying oil from Russia and increase the purchase of US energy, agriculture, and technical products.
Which Sectors Will Benefit the Most?
Following the India-US trade deal, the sectors showing the fastest excitement include Textiles, Gems & Jewellery, Specialty Chemicals, Seafood, and Engineering Exports. With tariffs reducing from 50% to 18%, Indian products have become cheaper, more competitive, and more attractive in the US market.
The Textile sector will get a big boost because the US is its largest export market. Lower costs and better margins can increase new orders. The Gems & Jewellery industry will also now be free from the pressure of high duties and will be able to easily access US retail channels.
Specialty Chemical companies will also benefit, as lower tariffs will put them in a stronger position compared to China and Southeast Asia. Seafood exports, especially the demand for shrimp and frozen food, are also expected to improve as the landed cost will decrease. Along with this, Engineering Goods, which run on low margins, will see direct benefits from this cut because tariff relief can immediately increase their earnings.
Overall, this deal has brought relief to those sectors which were under pressure from high duties and global supply challenges. Now the possibility of improvement in Demand, Order Book, and Profitability has increased.
How is India-US Trade Growing?
Trade between India and the US has been consistently strong in the last few years, but trends appear different in both directions.
Indian exports reached a peak of around $80 billion in FY25, increasing from $51.6 billion in FY21. Along with this, in FY26 (April–December) itself, exports have reached $65.9 billion. This indicates that India’s dominance in the US market is still strong, but global uncertainty and cost pressures have slightly slowed down the export momentum recently.
On the other hand, India’s imports increased from $28.9 billion in FY21 to reach nearly $50 billion in FY23, but since then, continuous softening is being seen. In FY26 (April–December), imports have come down to $39.4 billion. This decline suggests that domestic production capacity and alternative supply sources have now become stronger.
What Does This Mean for Investors?
Indian financial markets reacted immediately and positively to this deal. During trading on February 3, 2026, the BSE Sensex opened with a gain of about 2,300 points, while the NSE Nifty 50 opened nearly 700 points up, marking the biggest single-day gain of the year.
In the early session of the market, the Sensex and Nifty 50 rose by nearly 5%. This performance was one of the biggest increases in the last five years, and investors attributed this to the reduction in tariffs and the hope of ending tension between two major economies.
Investors showed interest especially in export-sensitive sectors like IT Services, Pharma, Specialty Chemicals, and Auto Ancillaries, because with the reduction of trade barriers with the US, the estimated income and profit possibilities of companies can improve.
What’s Next?
India and the US have been working on a strong Bilateral Trade Agreement (BTA) since February of last year. The goal is to increase trade between the two countries from the current $191 billion to $500 billion by 2030. This ambition is significant because the US is still India’s largest trading partner, and the value of bilateral trade between the two countries is $131.84 billion, which shows the depth of the relationship and economic potential.
The bigger picture is that just a few days ago, India also finalized a Free Trade Agreement (FTA) with the European Union (EU). This means that India now has the foundation of comprehensive and strong trade deals with the world’s two largest trading blocs the US and the EU. This is the first time in India’s economic history that the country has become a part of such deals simultaneously with two global superpower blocs.
In the coming years, a direct impact is expected on India’s global position, investment flow, manufacturing capacity, and export competitiveness. These deals will not only open big markets but will also further strengthen India’s economic stature on the international platform.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
