US Tariff Cuts on India: Rupee & Stocks Set to Rise

A recent agreement between the United States and India is poised to impact global markets and trade dynamics. US President Donald Trump announced a reduction in tariffs on Indian goods, lowering the duty from 25% to 18%, following a phone call with Prime Minister Narendra Modi regarding the cessation of Indian purchases of Russian oil. This move also includes the removal of an additional 25% duty previously imposed in response to India’s crude oil imports from Russia.

Tariff Reduction and its Immediate Impact

The decision comes as the Indian rupee had recently reached record lows, pressured by outflows from local stocks and a lack of a broader trade agreement with the US. Global funds had been withdrawing from Indian stocks for three consecutive years leading up to 2026. The developments are considered “immensely positive for every Indian asset class, even though full tariffs are not yet removed,” according to Garima Kapoor, deputy head of research and economist at Elara Capital.

Did You Know? India had been purchasing crude oil from Russia, prompting the initial imposition of a 25% duty by the US, which has now been removed.

Sector-Specific Benefits

Several equity sectors are expected to benefit from the tariff reduction, including gems and jewelry, textiles, machinery and automobiles. Export-oriented segments such as IT services, pharmaceuticals, specialty chemicals, auto ancillaries, and select engineering goods are also anticipated to see positive effects, according to Sonam Srivastava, founder of Wright Research PMS.

Expert Perspectives on the Agreement

Financial analysts suggest the tariff reduction will likely improve India’s balance of payments, strengthen the rupee, and attract foreign institutional investors. Deepak Agrawal, chief investment officer – debt at Kotak Mahindra Asset Management Co., also anticipates stable interest rates as a result of this positive macroeconomic outlook.

Expert Insight: The reduction in tariffs represents a stronger-than-expected external growth stimulus for the Indian economy, particularly when considered alongside the recently concluded India–EU trade agreement, according to Trideep Bhattacharya, chief investment officer – equities at Edelweiss Asset Management.

Michael Brown, senior research strategist at Pepperstone, described the news as “huge,” noting that the trade/tariff issue had been a significant risk. He suggests the agreement provides investors with confidence to re-enter the market and anticipate a more positive economic outlook.

Potential Future Scenarios

The sustainability of these positive effects could depend on the execution of the agreement, sector-specific uptake, and whether earnings upgrades follow. While a near-term market reaction is expected, long-term success is not guaranteed. It remains to be seen whether the anticipated $500 billion in purchase commitments will materialize, though this is a common uncertainty with such trade deals.

Frequently Asked Questions

What prompted the US to reduce tariffs on Indian goods?

The US reduced tariffs on Indian goods after Prime Minister Narendra Modi agreed to stop buying Russian oil, according to officials familiar with the matter.

Which sectors of the Indian economy are expected to benefit?

Gems and jewelry, textiles, machinery, automobiles, IT services, pharmaceuticals, specialty chemicals, auto ancillaries, and select engineering goods are among the sectors expected to benefit.

What impact is the agreement expected to have on the Indian rupee?

The agreement is likely to strengthen the rupee and improve India’s balance of payments, according to Deepak Agrawal, chief investment officer – debt at Kotak Mahindra Asset Management Co.

How will this agreement affect investor confidence in the Indian market?