Whalesbook
Trade Deal Boosts Market Sentiment
Indian equity markets staged a significant rally on Tuesday, propelled by the finalization of the long-awaited India-US trade deal. The agreement reduced reciprocal tariffs from 25 per cent to 18 per cent and eliminated additional 25 per cent tariffs on Indian exports to the U.S., removing a key geopolitical overhang.
The BSE Sensex surged over 4,205 points intraday, while the Nifty50 reclaimed the 26,300-mark with a jump of 1,253 points. This positive sentiment, however, is viewed by many analysts as a short-term catalyst.
Earnings Recovery Remains Crucial
While the trade deal is a clear positive for the medium-to-long term outlook, analysts caution that the sustainability of the market rally will ultimately depend on the pace and breadth of corporate earnings recovery. "The trade deal is a great boost for the sombre market sentiment, but exports to the U.S. are a small part of our $4-trillion economy," noted Apurva Sheth, head of market perspectives and research at SAMCO Securities. He added that while sentiment may improve in the short-term, a sustained uptrend requires a fresh long build-up.
Limited Direct Earnings Impact
Analysts pointed out that the direct impact of the original tariffs on the earnings of India's listed corporates was limited, primarily affecting privately held MSMEs and low-margin manufacturing firms. Consequently, the rollback is unlikely to materially alter the earnings trajectory of Indian equities, according to Sujan Hajra, chief economist and executive director at Anand Rathi Group.
The focus now shifts decisively to India Inc.'s earnings performance. The October-December quarter (Q3FY26) earnings for BSE Sensex companies have been the weakest in five years, with trailing earnings per share (EPS) up just 1.3 per cent year-on-year. This slowdown has raised concerns among foreign investors, who have been net sellers.
Outlook for Foreign Investment
Repeated downgrades to corporate profit estimates and failed turnaround expectations have weakened investor confidence. Sectors like information technology (IT), consumer staples, and banking and financial services (BFSI) have also reported slower earnings growth in Q3FY26. Despite valuation concerns, some analysts believe the India-US trade announcement, alongside an Indo-EU FTA, could assuage geopolitical seclusion worries and potentially attract foreign flows back into the market, positioning Indian equities for strong performance in Asia.