The sharp buying came as Indian markets reacted positively to the announcement that the US had cut tariffs on Indian goods to 18% from as high as 50%, easing fears that had weighed heavily on stocks, the rupee and bonds for months.
Markets snap out of tariff gloom
Indian equities staged a strong rebound on Tuesday, with the Nifty 50 rising 2.5% to post its best one-day gain since May 2025. The rally was broad-based, with heavyweight stocks leading the move.
Indian markets had been under sustained pressure since late August, when Washington imposed steep tariffs on Indian exports. That move pushed Indian equities and the rupee into the list of worst-performing emerging market assets in 2025 and triggered record foreign investor outflows.
Why FII buying matters now
The return of FIIs is significant because foreign investors had been consistently selling Indian equities for months amid tariff uncertainty, geopolitical risks and a strong dollar environment. The trade deal has helped address one of the biggest concerns for global investors: the risk of India being shut out or disadvantaged in global trade flows.
US President Donald Trump announced the agreement after a call with Prime Minister Narendra Modi, saying India had agreed to halt Russian oil purchases and lower trade barriers on US exports. While details are still emerging, Indian officials have indicated that the country will step up purchases of US petroleum, defence equipment and aircraft, while selectively opening parts of its agricultural sector.
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Investors see this as a major step toward restoring trade stability between the two countries. According to analysts, a successful bilateral trade agreement should help enhance investor confidence, boost foreign investment and capital expenditure plans, and strengthen the Indian rupee.
The rupee strengthened by more than 1% to around 90.26 against the US dollar, logging its strongest rally in over seven years. Bond markets also reacted positively, with the yield on the 10-year benchmark government bond falling about 5 basis points to 6.72%, reflecting improved risk sentiment.
Geopolitical overhang lifts
The trade deal is also being viewed as a geopolitical reset. For months, the US–India trade rift had kept global investors cautious about increasing exposure to Indian assets. Analysts say the key tail risk of geopolitical isolation that investors were worried about has now been addressed through back-to-back trade agreements with the European Union and the United States. This has improved India’s standing at a time when global supply chains are being reworked.
The US breakthrough comes less than a week after India signed a long-awaited trade pact with the European Union, which is expected to eliminate or reduce tariffs on nearly 97% of traded goods by value. Together, the two deals significantly improve India’s access to key export markets.