MUMBAI — Indian financial markets surged on Tuesday after Washington slashed tariffs on Indian goods to 18 percent from 50 percent, removing a major drag on the country's stocks and currency.
The Nifty 50 benchmark index closed 2.5 percent higher after opening up 5 percent. The rupee strengthened more than 1 percent to 90.26 per dollar, its sharpest single-day gain since 2021.
Foreign institutional investors turned net buyers for the first time in months, with inflows reaching 52.36 billion rupees — the highest since late October, according to provisional data from India's National Stock Exchange.
Markets had suffered since August tariffs took
Indian equities and the rupee ranked among the worst-performing emerging market assets in 2025 after Washington imposed the tariffs in late August. Foreign investors pulled $8 billion from Indian stocks during that period.
The MSCI India index gained just 4.29 percent in dollar terms last year, compared to a 33.57 percent rise in the broader MSCI Emerging Markets index.
"The key tail risk of geopolitical isolation about which investors were concerned has now been adequately addressed by back-to-back trade deals with the European Union and United States," Citi economists said in a note.
India agrees to halt Russian oil, buy American goods
U.S. President Donald Trump announced the deal on social media following a call with Indian Prime Minister Narendra Modi.
India agreed to halt Russian oil purchases, reduce tariffs on American imports to zero, and commit to buying $500 billion worth of U.S. goods including energy, agriculture, coal, technology, defence equipment, and aircraft.
An Indian government official said New Delhi would also partly open its guarded agricultural sector.
Indian refiners will need time to wind down existing Russian oil contracts before imports can be halted, two refining sources told Reuters on Tuesday.
Marcella Chow, global market strategist at J.P. Morgan Asset Management, said a successful bilateral agreement should "enhance investor confidence, boost foreign investment and capital expenditure plans while strengthening the Indian rupee."
Analysts at Jefferies expect companies in auto parts, solar manufacturing, and chemicals to benefit most from the reduced tariffs.
"The reduction of the U.S. tariff rate on most Indian goods will reinvigorate India's export growth to the U.S.," credit rating agency Moody's said.
India's exports to the United States rose 15.88 percent year-on-year to $85.5 billion in the January-November period. Imports from the U.S. stood at $46.08 billion.
Deal follows EU agreement signed last week
The U.S. breakthrough arrived less than a week after India signed a trade agreement with the European Union that will eliminate or reduce tariffs on 96.6 percent of traded goods by value.
"When combined with the recently concluded India-EU trade agreement, this potentially represents one of the strongest external growth stimuli for the Indian economy in 2026," said Trideep Bhattacharya, president of equities at Edelweiss Asset Management.
What it signals for Canada's stalled trade talks
The deal offers a contrast to Canada's trade position with Washington. While India secured an 18 percent tariff rate, Canadian goods face 35 percent duties, with additional levies on steel, aluminium, and lumber.
Canada has been working to diversify its export markets amid uncertainty over the Canada-United States-Mexico Agreement review later this year. Prime Minister Mark Carney has pursued trade partnerships with countries including India, where bilateral talks resumed recently after years of delay.
Adani Enterprises led gains on the Nifty, rising 10.6 percent. Adani Ports climbed 9.2 percent and Jio Financial Services added 8.1 percent. The Nifty Realty index finished up 4.8 percent, while pharma stocks gained 3 percent.
