India-US Trade Deal Could Slash Tariffs to 15%: Markets Rally on Hope of Historic Breakthrough

Indian stock markets are riding a powerful wave of optimism as reports emerge that New Delhi and Washington are on the verge of finalizing a landmark trade agreement that could dramatically reduce tariffs from a punishing 50% to just 15-16%. The news has triggered a sharp reversal in foreign investor sentiment, with the Nifty 50 now sitting just 410 points away from its all-time high of 26,277.

After three brutal months of relentless selling that saw foreign institutional investors (FIIs) pull out nearly Rs 2 lakh crore from Indian equities in 2025, Dalal Street is finally witnessing a dramatic turnaround. In October alone, FIIs have pumped over Rs 7,300 crore back into Indian stocks, signaling renewed confidence in Asia’s third-largest economy.

The Trade Deal That Could Change Everything

According to multiple reports citing three sources familiar with the negotiations, India and the United States are in advanced stages of finalizing a comprehensive trade pact that addresses key friction points that have strained bilateral relations for months. The deal, which could be announced as early as the ASEAN Summit later this month, promises to ease the tariff burden that has crippled Indian exporters across multiple sectors.

The proposed agreement centers on two critical components: energy and agriculture. In exchange for substantial tariff relief, India is reportedly considering a gradual reduction in its imports of Russian crude oil, which currently accounts for approximately 34% of the country’s total crude imports. At the same time, New Delhi may increase quotas for non-genetically modified corn and soymeal imports from the United States.

US President Donald Trump spoke with Prime Minister Narendra Modi on Tuesday, October 21, during Diwali celebrations, with trade dominating their conversation. “We talked about a lot of things, but mostly the world of trade,” Trump told reporters in the Oval Office, calling Modi “a great friend.” The American president reiterated his claim that India would significantly reduce Russian oil purchases.

Why This Matters for Indian Exporters

The stakes could not be higher. The United States is India’s largest export destination, accounting for nearly 17% of total goods exports valued at approximately $87 billion annually. The imposition of 50% tariffs in August 2025—comprising a 25% reciprocal tariff and an additional 25% penalty for Russian oil purchases—has been devastating for export-intensive sectors.

Indian exports to the US have plunged sharply over four consecutive months. From a peak of $8.8 billion in May 2025, shipments fell to just $5.5 billion in September—a decline of 37.5% that wiped out over $3.3 billion in monthly trade value. September marked the first full month under the 50% tariff regime, and the damage was immediate and severe.

Labor-intensive sectors bore the brunt of the impact. Textiles and apparel exports dropped 10.1%, gems and jewelry faced margin compression despite minimal growth, and engineering goods—India’s largest export category at $117 billion annually—saw $12.5 billion worth of shipments at risk. Auto components, chemicals, and marine products also suffered significant setbacks.

A tariff reduction to 15-16% would restore competitiveness for Indian exporters and potentially reverse the bleeding. Sectors like pharmaceuticals, textiles, and engineering products stand to benefit enormously, as lower duties would make Indian goods competitive once again in the American market.

Foreign Money Returns to Dalal Street

The prospect of a trade breakthrough has already begun reshaping investor behavior. After selling a record $18 billion worth of Indian equities earlier this year amid concerns over stretched valuations, slowing earnings growth, and Trump’s tariff war, foreign institutional investors have executed a dramatic U-turn.

Data from NSDL shows that FIIs turned net buyers in five of the seven sessions between October 7 and October 14, pumping in more than Rs 3,000 crore in the secondary market. Including primary market participation, foreign inflows exceeded Rs 7,600 crore during this period. By October 21, FIIs had net purchased over Rs 7,300 crore in October—a stark contrast to the Rs 22,761 crore they offloaded in September.

This reversal has been instrumental in driving the market rally. Since the beginning of October, the Sensex and Nifty have surged approximately 3%. On October 20, the Nifty closed at 25,843, extending its winning streak to four consecutive sessions. During the special Muhurat Trading session on October 21—marking the start of Samvat 2082—the index gained another 25 points to close at 25,869.

Technical analysts are now eyeing the Nifty’s all-time high of 26,277, reached earlier in 2024. With the index currently at 25,869, a gain of just 410 points—or about 1.6%—would push it into uncharted territory. GIFT Nifty futures were trading at 26,280 on Wednesday, October 22, up 1.56% from the previous close, signaling strong momentum ahead of Thursday’s regular trading session.

”After three brutal months of foreign exodus, Dalal Street is roaring back to life, powered by a dramatic U-turn from foreign institutional investors,” noted an Economic Times report. “The 50-share Nifty now sits tantalizingly close to its all-time high.”

The Russian Oil Complication

The trade deal’s energy component presents both opportunity and complexity for India. Currently, Russia supplies about 1.6 million barrels per day to India, representing 34% of total crude imports. This is a dramatic increase from the pre-2022 level of just 1.7%, when India purchased barely any Russian oil.

India turned to Russian crude in early 2022 after Western sanctions on Moscow created a discounted buyer’s market. At its peak in 2023, Russian oil traded at discounts of $19-20 per barrel below benchmark Brent crude. These savings helped India save billions of dollars on its energy bill—an estimated $17 billion since 2022.

However, those discounts have now shrunk dramatically to just $2-2.50 per barrel, making American and Middle Eastern crude far more competitive. As a result, India saved only about $3.8 billion in fiscal 2025 as Russian discounts evaporated.

The US has made clear that reducing Russian oil imports is a precondition for the trade deal. During his Diwali call with Modi, Trump emphasized this point. “He’s not going to buy much oil from Russia. He wants to see that war end as much as I do,” Trump told reporters.

Indian officials have reportedly visited Moscow to inform Russian counterparts that New Delhi plans to gradually scale down crude imports. The government may quietly advise state-run oil marketing companies to diversify sourcing toward the United States, which has emerged as India’s fifth-largest oil supplier.

However, a rapid withdrawal is unlikely. India’s energy security and cost considerations will dictate a measured approach. State-run refiners have already cut Russian imports by 45%, but private operators like Reliance Industries and Nayara Energy have increased purchases, reaching their highest levels in September.

Sectors to Watch

If the trade deal materializes, several sectors stand to gain significantly:

Textiles and Apparel: Currently facing 50% tariffs, this labor-intensive sector employs millions and has seen orders dry up. A return to 15-16% duties would restore competitiveness against Bangladesh and Vietnam.

Gems and Jewelry: With the US accounting for nearly 30% of India’s $10 billion in annual exports, the sector has been pleading for relief. Lower tariffs could prevent widespread job losses.

Pharmaceuticals: While Indian generic drugs were exempt from the initial tariff hikes, the sector remains vulnerable to future escalation. A comprehensive trade deal would provide long-term certainty.

Engineering Goods: This $117 billion export category, including auto components and industrial machinery, has been severely impacted. Tariff relief would unlock billions in stalled shipments.

IT Services: Although not directly targeted by tariffs, the sector would benefit from improved bilateral relations and reduced uncertainty for US clients.

What’s Next?

The deal could be formally announced during a meeting between Trump and Modi at the ASEAN Summit later in October, though neither leader has confirmed participation. Key details remain under negotiation, including exact tariff coverage, implementation timelines, and India’s schedule for reducing Russian oil imports.

Dairy products remain a sticking point. While the US is pushing hard for tariff reductions on high-end cheese and dairy imports, India has yet to provide final clarity on this demand.

Chief Economic Advisor V Anantha Nageswaran has expressed optimism that the tariff dispute will be resolved within the next two months, leading to the eventual withdrawal of the White House-imposed penal levies.

For now, markets are trading on hope. The combination of improving FII sentiment, robust domestic institutional buying (DIIs have pumped in nearly Rs 30,000 crore in October), and the prospect of tariff relief has created a powerful tailwind for Indian equities.

If the trade deal is finalized and tariffs are indeed slashed to 15-16%, it would mark the most substantial trade breakthrough between the two nations in recent years and could catalyze a fresh rally that pushes the Nifty to new record highs in the weeks ahead.

What to Watch Next

• ASEAN Summit Announcement: Watch for any formal confirmation of a Trump-Modi meeting and potential deal announcement later in October.
• Nifty Technical Levels: Immediate resistance at 25,900-26,000, with support at 25,600-25,500. A break above 26,000 could trigger momentum toward the all-time high.
• FII Flow Continuity: Monitor whether foreign inflows sustain beyond October or if this is merely a tactical repositioning.
• Russian Oil Import Data: Track November crude import figures to see if India begins scaling back Russian purchases.
• Q2 Earnings Season: Corporate results will determine if the earnings slowdown is bottoming out, a key factor for sustaining the rally.

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Disclaimer: This article is only for information purposes and is not investment advice. Before investing, do your own research.