Indian stocks rallied and ended in the green on Tuesday, with the Sensex climbing more than 590 points and the Nifty 50 breaching the 25,230 level, as a number of factors, from gains in auto stocks to optimism over U.S. trade negotiations and expectations of a U.S. Federal Reserve rate cut, shaped investor sentiment.

The S&P BSE Sensex climbed 594.95 points, or 0.73%, to finish at 82,380.69, while the NSE Nifty 50 pushed above 25,239, higher by 169.90 points, or 0.68%.

Here are the key factors behind the rally:

1. Trade optimism

Trade optimism underpinned sentiment as India and the U.S. returned to the negotiating table in New Delhi on Tuesday, weeks after Washington imposed punitive tariffs on New Delhi’s purchase of Russian oil.

“The domestic market sustained its recovery trend, supported by… renewed optimism surrounding the resumed India-U.S. trade negotiations,” said Vinod Nair, head of research at Geojit Investments.

Talks are being led by Brendan Lynch, the U.S. assistant trade representative for South and Central Asia, marking the first official engagement since President Donald Trump imposed an additional 25% tariff on Indian goods from August 27. The move came on top of reciprocal 25% duties that have been in place since August 7.Broader markets also participated in the upswing, with small-caps adding about 1% and mid-caps rising 0.5%.

2. Fed rate cut expectations

Attention also turned to the Federal Reserve, which will announce its policy decision after Indian market hours on Wednesday. A 25-basis-point rate cut is fully priced in by money markets, with investors projecting four or five more quarter-point reductions over the next year.

Lower U.S. rates typically bolster flows into emerging markets such as India by reducing Treasury yields and weakening the dollar.

“The domestic market sustained its recovery trend, supported by favourable global cues on expectations of ~25 bps rate cut in the forthcoming US Fed policy decision,” said Vinod Nair, head of research at Geojit Investments.

Market experts believe the dollar’s weakness reflected investor positioning ahead of the announcement. With the labour market softening and inflation still above target, markets are watching closely to see which part of the Fed’s mandate the committee will prioritise, and how it intends to respond to incoming data.

3. GST reforms euphoria lifts autos stocks

Auto stocks led the advance as investors cheered the forthcoming overhaul of India’s Goods and Services Tax (GST) regime and looked ahead to festive-season demand.

“Auto and consumer durable stocks outperformed, ahead of the rollout of new GST rates and festive-driven demand expectations. Going forward, investor attention will remain on trade discussions, while strong domestic macro fundamentals are expected to drive upward earnings revisions, supporting current valuations and mitigating downside risks,” said Vinod Nair, head of research at Geojit Investments.

The 56th GST Council, chaired by finance minister Nirmala Sitharaman earlier this month, approved a major revamp to the system. Effective September 22, 2025, the new framework replaces the previous four-slab structure with two rates: 5% for essential goods and 18% for most other goods and services. The changes are expected to ease household budgets while preserving standard taxation across much of the economy.

The auto index rose 1.4%, snapping a five-session losing streak, led by a 2.2% gain in Mahindra & Mahindra. Meanwhile, the consumer durables index added 0.8%.