Tariff Relief Sparks Rally In Export-Oriented Sectors As India–US Trade Deal Eases Uncertainty

The long-awaited India–US trade deal finally broke the logjam that weighed on markets for much of the past year. On the night of February 2, 2026, the US President Donald Trump announced an immediate cut in reciprocal tariffs on Indian imports to 18 per cent from 25 per cent earlier. In return, India will reduce tariffs and non-tariff barriers on US goods to zero and increase purchases of American energy and other products.

Markets wasted no time in reacting. Domestic equity benchmarks surged as much as 5 per cent on February 3, registering their biggest single-day gains in absolute terms, as investors rushed to price in lower trade uncertainty and a revival in export-led growth. The Sensex jumped over 4,200 points intraday, while the Nifty climbed close to its record highs amid broad-based buying across sectors.

The India–US trade deal comes close on the heels of India signing a long-pending Free Trade Agreement with the European Union, often dubbed the “mother of all deals”. Finalised after nearly two decades of negotiations, the EU pact gives India duty-free access to the bloc’s $572.3-billion market for pharmaceuticals and medical devices, a move expected to significantly boost the domestic pharma sector and further integrate India into global supply chains. The breakthrough with the EU is also seen as having added urgency to US negotiators to wrap up talks with India.

The agreement with Washington also follows the presentation of the Union Budget 2026, which had partially factored in the impact of the steep 50 per cent tariff imposed by the US on Indian goods. That cumulative levy included a 25 per cent penalty linked to India’s purchases of Russian oil, a key issue that had weighed on trade and market sentiment in recent months.

Key Sectors To Benefit From India-US Trade Deal

Here are the key sectors that are likely to benefit from improved access to the world’s largest economy and the removal of a major geopolitical overhang.

IT Services

From a sectoral perspective, export-heavy industries are expected to be the most direct beneficiaries. “Export-oriented segments such as IT services, pharmaceuticals, specialty chemicals, auto ancillaries, and select engineering goods stand to benefit the most,” said Sonam Srivastava, founder and fund manager at Wright Research PMS. Lower tariffs, she said, improve price competitiveness for Indian firms in the US market, which remains India’s largest export destination, potentially translating into better order inflows, margin stability and higher capacity utilisation over time.

The IT services sector, which derives a substantial portion of revenues from North America, is likely to gain from improved sentiment and a stronger rupee outlook. While tariffs do not directly apply to services, easing trade tensions and policy clarity could encourage higher technology spending by US clients, analysts say.

Pharmaceuticals

Pharmaceuticals are another key beneficiary. The India–EU free trade agreement, signed recently, has already boosted optimism around Indian drugmakers by offering duty-free access to a large European market. The US deal further strengthens India’s integration into global supply chains, particularly for generics and contract manufacturing, where cost competitiveness is critical.

Auto Ancillaries

Auto component makers with significant export exposure to the US market is also a beneficiary of this trade deal. Several listed companies derive a sizeable share of their revenues from the American market, making them direct beneficiaries of tariff cuts.

Bharat Forge earns around 32 per cent of its revenue from exports to the US, while Sona BLW sources roughly 30 per cent from the region. Sundram Fasteners (22 per cent), Sundaram Clayton (30 per cent), GNA Axles (27 per cent), Ramkrishna Forgings (17 per cent), MM Forgings (15 per cent), Balkrishna Industries (15 per cent) and Sanmar Engineering’s arm Sansera (10 per cent) also have significant US exposure.

Lower tariffs enhance the competitiveness of Indian-made components against global peers, especially in a phase where global automakers are looking to diversify supply chains. However, companies such as SAMIL and Suprajit Engineering, which have manufacturing operations in the US, are unlikely to see a direct tariff-related benefit, as their products are already locally produced.

India-US Trade Deal A 'Game Changer', Say Experts

Beyond sector-specific gains, the trade deal is being seen as a positive macro trigger. Deepak Agrawal, CIO – Debt at Kotak Mutual Fund, said the reduction in tariffs on Indian exports is likely to support the balance of payments, strengthen the rupee and boost foreign exchange reserves. “It can also attract foreign institutional investors (FIIs) who had been waiting on the sidelines, especially as Indian equities’ valuation premium has narrowed over the past year,” he said, adding that the improved outlook could help keep interest rates stable.

Akshat Garg, Head of Research and Product at Choice Wealth, described the agreement as a “pragmatic exchange” rather than a headline-grabbing pact. India’s commitment to trimming select trade barriers and increasing purchases of US crude could help secure energy supplies, tame inflation and support manufacturing, while the US tariff cut eases export costs for Indian firms. “The deal isn’t a cure-all, but it can reduce uncertainty, improve supply-chain resilience, and create room for deeper cooperation,” he said.

Analysts say that the biggest beneficiary may be market sentiment itself. VK Vijayakumar, chief investment strategist at Geojit Investments, called the tariff cut a “game changer” for the Indian economy and stock markets. He expects India’s growth rate to rise to around 7.5 per cent in FY27, with corporate earnings accelerating to 16–18 per cent, aided by higher exports and a revival in animal spirits. Large-cap stocks favoured by foreign investors, banks, NBFCs, IT and capital goods, could outperform amid renewed FII inflows, he said.

At the same time, some economists urge caution against overestimating near-term earnings gains. Sujan Hajra, chief economist at Anand Rathi Group, said that the earlier tariff shock had a limited direct impact on listed corporate earnings, as US export exposure was skewed towards MSMEs and low-margin manufacturing. In his view, the real importance of the deal lies in the restoration of geopolitical and trade stability. As risk premia normalise, India once again looks investable to global capital, setting the stage for a potential catch-up rally.

In that sense, the fading of a “geopolitical discount” may prove as important as the tariff relief itself, particularly for export-facing sectors now back in the global investor spotlight.