India-US trade deal: Key expectations of the Indian stock market you should know

Mint

5 hours ago

India-US trade deal: A favourable India-US trade deal is one key factor that could trigger a breakout in the Indian stock market, potentially pushing the frontline indices to record highs.
India and the US are actively engaged in trade negotiations as the July 9 deadline looms. On July 1, US President Donald Trump said that a deal between the two countries could be announced soon. Yet, the deal remains elusive. Reports suggest that both countries are stuck on resolving key disagreements over US dairy and agricultural products.
In case of no trade deal before July 9, Indian exports to the US would face a total tariff of 36 per cent (10 per cent baseline tariffs + 26 per cent reciprocal tariffs), as Trump has indicated the deadline may not be extended.
When Trump announced reciprocal tariffs against the US trading partners on April 2, which he termed 'Liberation Day', experts pointed out that the Indian economy would be relatively less impacted by a trade war because it is dominated by domestic consumption.
Moreover, India's trade surplus with the US is not significant, and its exports in the most vulnerable sectors amount to only 1.1 per cent of its GDP.
Nevertheless, the India-US trade deal remains a key factor influencing market sentiment due to the strategic signals it sends. Experts note that a deal favourable to India would highlight the country's diplomatic strength, potentially leading to broader economic and geopolitical advantages.
A key factor that experts point out is that the two countries may not announce a final deal before July 9. Instead, a full agreement could be a multi-phased process.
"While there is still optimism that a deal can be struck before the 9th July deadline, it is worth tempering expectations, as the full agreement is expected to be a protracted, multi-phase process likely spanning two to three years of consistent negotiations," said Madhavi Arora, Lead Economist at Emkay Global Financial Services.
"The expectation is that both countries will announce quick, easy wins (lowering tariffs in non-sensitive sectors, buying more oil and gas and defence equipment, etc.), while negotiations around sensitive sectors (such as agri) will get kicked down the road," said Arora.
The key expectations and potential impacts of the India–US trade deal revolve around sector-specific gains, tariff relief, and resolving long-pending trade issues.
The Indian stock market is hoping for a trade deal that lifts tariff barriers on key exports to the US, including IT services, pharmaceuticals, textiles, electronics, and auto components.
According to Ajit Mishra, SVP of research at Religare Broking, reducing or eliminating tariffs on exports of textiles, pharma, electronics, auto parts, and steel would directly boost these sectors, especially by helping avoid the proposed 26 per cent US duty.
More importantly, clearing up trade uncertainty could bring FIIs and lift overall market sentiment. The immediate boost would come from improved confidence, especially in export-driven stocks. Over the long term, the deal could help push India closer to its target of doubling trade with the US to $500 billion, Mishra noted.
There are clear indications that India and the US are close to a trade deal, with President Trump himself announcing the possibility of a deal with India soon. However, details of the possible agreement are still speculative.
Sujan Hajra, chief economist and executive director, Anand Rathi Group, highlighted that the India-US trade negotiations focus on contentious issues including agricultural market access, dairy sector protections, industrial tariffs, digital trade rules, and reciprocal tariff reductions.
The US seeks greater access to India's sensitive agricultural and dairy markets and wants lower tariffs on industrial goods and digital services. India, however, remains firm on protecting its agriculture, dairy, and data sovereignty policies.
"The two countries aim to finalise an interim agreement by July 9, 2025, to avoid a 26 per cent reciprocal tariff on Indian exports. A successful deal would likely boost bilateral trade, improve export opportunities for Indian industries, and enhance investor confidence," said Hajra.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments, India is unlikely to budge on agri and dairy trade with the US. However, it may allow higher imports of high-end automobiles like Harley-Davidson and some luxury cars.
Vijayakumar highlighted that the imports of these will be limited in number and are unlikely to impact Indian auto manufacturers.
Vijayakumar said that India may allow increased imports of LNG and some defence products, which can help reduce the US trade deficit with India.
"Trump had threatened to impose tariffs on Indian pharma imports. If the US softens its stand on this, the Indian pharma industry will stand to benefit. Textiles is another area which can turn out to be beneficial to India if the US agrees to lower the tariffs on textiles," Vijayakumar added.
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