India-US trade deal: Stocks to gain, market strategy, rupee outlook after Trump tariff cut

India-US trade deal, Trump tariff cut: Stock analysts on Tuesday said the conclusion of the India-US trade deal should trigger a strong rally in Indian stocks. This provides significant relief to the stressed financial markets and should trigger rallies in the rupee and  short-term rates, they said.

Emkay Global said the development should result in strong FPI buying on the back of reasonable valuations and an earnings recovery.  Given the large underperformance of India, undervalued rupee, FII flows could come
back and be a significant boost to markets in the near term, said Nuvama Institutional Equities.

Sectors to benefit 
Emkay Global said India and the US has signed off on a trade deal late night where in the US has cut tariffs for imports from India, from 50 per cent to 18 per cent. India, on the other hand, has agreed to stop crude imports from Russia and reduce tariff and non-tariff barriers for imports from the US, including “energy, technology, agricultural, coal and many other products”, according to a post from the US President. 
Emkay said it would await a formal announcement of the details.

“Chemicals, textiles, and autos are the direct beneficiaries, and Enkay remained constructive on its core themes of discretionary consumption, SMID lenders, and internet companies,” it said. 

Nuvama Institutional Equities said labour-intensive sectors such as textiles, gems/jewellery clearly stand to benefit.

“It is these segments which bore the maximum brunt of Trump 50 per cent tariffs (pharma, electronics etc were largely exempted from Trump tariffs). In fact these labour-intensive segments were also the beneficiary of EU-India FTA, wherein, the EU agreed to lower tariffs on India labour intensive exports. This is boost not just to exports but also to employment generation in India. In addition, chemicals, cables, new energy areas also start to benefit,” Nuvama said.

Rupee impact
Emkay said India’s main pressure point has been the currency. It expects a dramatic reversal in the coming days, given that rupee depreciated 3 per cent over the last three months . 

“This is likely to trigger a positive chain reaction. The RBI, now freed of the burden of defending the rupee, will be able to comfortably inject liquidity into the domestic economy. This, we think, should accelerate monetary transmission and have a positive impact on loan yields, deposit costs, and short-term bond yields,” it said.

“Longer-tenor bond yields should also fall, though they could lag given the pressures on the central+state government borrowing,” it said.

Market outlook
Emkay said the deal this will cascade into a strong rally in equities. A reversal in the rupee is likely to trigger a wave of FPI buying, supported by multiple other factors. It noted that earnings momentum is turning positive with FY27E Nifty EPS poised for 14 per cent YoY growth after two years of disappointment; the earnings revision momentum is also turning positive. 

Besides, Emkay said valuations have corrected to five-year average levels, with deep corrections in small and midcap stocks. The reversal of the AI and metals trade brings India back into focus for overseas investors, it said adding that  there was significant money waiting on the sidelines, unwilling to catch the falling rupee knife.

Stocks to benefit from trade deal

Emkay said the trade deal directly benefits a narrow part of the market: It sees chemical stocks such as SRF, Navin Fluorine, Gujarat Fluoro, Aarti and Atul as beneficiaries. 

In the textiles sector, it sees Gokaldas and Welspun Living among major beneficiaries. 

In the auto Ancillaries segment stocks such as Suprajit, Bharat Forge and Sona Comstar could gain. 

“There could be a negative impact on OMCs and Reliance if India stops buying Russian crude,” it said.

Market strategy, Nifty target
The bigger play is the broader market, and Emkay’s preferred themes are i) smallcap banks and NBFCs, which could be a play on acceleration in the easing cycle. It likes discretionary consumption through autos, and new age stocks, which are a structural India play. 

“Our preferred picks are Tata Motors CV, IDFC First Bank, Shriram Finance, Shriram Pistons, Lenskart, and Eternal,” it said.

Emkay said its Nifty target of 29,000 remains unchanged.