India-US trade deal removes key overhang for equities, FPIs may return: Report

New Delhi [India], February 3 (ANI): India-US trade deal is expected to provide a significant boost to Indian equities, with foreign portfolio investor (FPI) equity outflows likely to reverse and several key sectors poised to benefit, noted a report by Antique Stock Broking.
The report says, the deal removes a major overhang for Indian markets that has persisted over the last 15 months.
The report noted, "This development is significantly positive for Indian equities as FPI equity outflow of USD 34 bn since Oct-24, the highest among EMs, may reverse as the US accounts for ~41% of FPI AUC and valuation premium relative to other EMs and DMs are near the long-term average>"
With the US accounting for around 41 per cent of total FPI assets under custody in India, the improved trade outlook could trigger a meaningful reversal in flows, particularly as India's valuation premium versus other emerging and developed markets is now close to long-term averages
Sectors with relatively high FPI ownership such as real estate, telecommunications, transportation, financial services and healthcare are expected to be among the primary beneficiaries if foreign inflows resume. In addition, sectors where FPIs are currently structurally underweight, including capital goods, financial services, IT services and power utilities, could see incremental allocation and valuation re-rating
Beyond flows, the trade deal is also expected to support India's macro outlook. The reduction in tariffs alleviates risks to nearly USD 50 billion of exports, particularly in labour-intensive segments such as textiles, gems and jewellery, machinery, chemicals, plastics and agriculture. This is estimated to support India's nominal GDP growth by around 50 to 80 basis points, while stronger capital inflows could also lead to near-term appreciation in the rupee
It says, "the reduced US tariff is likely to support GDP growth by 50-80 bps. Moreover, FPI equity inflow and stronger domestic macro may lead to INR appreciation in the near term."
The report says, market participants remain constructive on Indian equities, highlighting financials, capital goods, defence and consumer discretionary as key overweight sectors in the current environment, supported by improving external dynamics and domestic growth prospects.
Although details of the deal have not come US President Donald Trump has announced on social media site 'truth speak' that the reciprocal tariffs on Indian goods have been reduced sharply from 50 per cent to 18 per cent, marginally lower than those faced by other Asian peers.
In return, India has committed to reducing tariffs and non-tariff barriers to zero. Details of the deal is likely to be announced soon. (ANI)