India’s benchmark stock index, the Nifty 50, surged nearly 5%, about 100 points away from its record high hit in January. The rupee climbed over 1% to 90.40 per dollar in early trading. The yield on the country’s 10-year benchmark bond declined 5 bps to 6.72%

The Nifty’s rise put it on course for the best one-day gain in five years while the rupee was on track for its best day since November 2022.

US President Donald Trump announced the deal on social media following a call with Indian Prime Minister Narendra Modi, noting that India had agreed to halt Russian oil purchases and lower trade barriers on US exports.

Indian stock markets and the rupee have been battered since the tariffs were levied by Washington in late August, placing them among the worst-performing emerging market assets in 2025, with record foreign investor outflows.

The trade breakthrough is expected to alleviate the persistent drag, with investors expecting a bounce-back in foreign sentiment and flows into Indian assets.

“We believe this trade deal announcement should lift a key overhang on Indian equities. Foreign investors who have been net sellers recently might also look to increase their weight to India in light of this announcement,” said Prashant Paroda, portfolio manager with AllSpring Global’s Intrinsic Emerging Market equities team.

The trade deal is also expected to lift a pall of geopolitical uncertainty which had accompanied the US-India trade rift, keeping investors cautious on plowing money into the country.

“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,” economists at Citi said in a note.

The breakthrough with the US comes less than a week after India signed a long-awaited trade deal with the European Union that is expected to eliminate or reduce tariffs on 96.6% of traded goods by value.

Foreign investors have withdrawn over US$22 billion from Indian stocks over last year.