Indian stock indexes return to record highs as rumors of a tariff agreement boost market optimism

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Driven by rumors of a tariff agreement, the Indian stock market continued its strong rally, with the benchmark index just a step away from its all-time high.

On Thursday, the Nifty 50 index closed higher for the sixth consecutive trading day, marking its longest winning streak since September 12, now only about 1% away from its all-time closing high. Gift Nifty futures (Gift Nifty is a US dollar-denominated derivative contract tracking the Nifty 50 index) rose 377 points or 1.45% to 26,300 during Friday’s trading session, indicating that the Indian stock market may break through previous highs.

According to CCTV News, on August 25 local time, the U.S. Department of Homeland Security issued a notice that it plans to impose a 50% tariff on Indian goods starting from midnight on August 27. As Wallstreetcn previously reported, the Indian media outlet Mint recently reported that India and the U.S. are close to reaching a long-pending trade agreement, which may significantly lower tariffs on Indian goods from 50% to 15-16%.

The report stated that the agreement is expected to be announced later this month at the ASEAN summit by U.S. President Trump and Indian Prime Minister Modi. Market participants believe that the conclusion of the trade agreement may remove the main uncertainty in the market. If a tariff agreement is reached, it could trigger a new bull market. Harshal Dasani, Head of PMS Business at INVAsset, commented that the India-U.S. trade agreement has long been the only unresolved factor for the market, and if Washington brings tariffs down to 15-16%, it may serve as a catalyst for a market rally.

Meanwhile, technical indicators for Indian stock indexes show strong momentum. In addition, after three consecutive months of selling, foreign institutional investors (FII) have turned net buyers this month, with a net purchase of 7.362 billion rupees.

Substantial Progress in Trade Negotiations

According to media reports, India and the U.S. have made key progress in trade agreement negotiations. The U.S. is showing a willingness to reach an agreement.

In the energy sector, India is expected to reduce its imports of Russian oil and is considering allowing ethanol imports; in exchange, the U.S. will make concessions in energy trade.

Currently, Russia accounts for about 34% of India’s crude oil imports, while the U.S. makes up approximately 10% of India’s oil and gas imports. Executives of Indian refining companies warn that after the U.S. sanctioned Russian oil giants Rosneft and Lukoil, the inflow of Russian oil could drop to nearly zero.

In addition, India is considering increasing its quota for non-GMO corn imports from the U.S., to meet the growing domestic demand in the poultry feed, dairy input, and ethanol industries.

Rising Expectations for Foreign Capital Inflows; Technicals Show Strong Momentum

Sunil Subramaniam, Strategic Advisor at BayFort Capital and market veteran, stated that if the rumors of the trade agreement are true, it could trigger foreign institutional investors to return to the Indian market, "then there will be no ceiling for the market".

Foreign institutional investors have been watching the Indian market from the sidelines so far this year, with a cumulative net sale of 14.72 trillion rupees in stocks for the year. However, after three straight months of selling, the trend reversed this month, with FIIs net buying 7.362 billion rupees of Indian stocks.

Kranthi Bathini of Wealthmills Securities believes that if tariffs are cut to 15-16%, it would benefit both the country and exporters. However, he cautioned investors not to act rashly based on mere rumors, and to wait for clear information.

He pointed out that market narratives have changed many times before, but this is indeed positive progress, and if realized, would be good for the market and investors alike.

Dasani expects that with global risk appetite staying stable and domestic liquidity at a historic high, any positive trade development could trigger a new round of bull markets. He believes that as momentum returns across sectors, the Nifty index could advance towards the 30,000 zone in the next 8-9 months.

Technically, the Nifty 50 index is expected to record its best monthly performance since March. Although the index is just 1% away from its all-time high, some technical analysts believe that the 26,000 level will be a key resistance, testing the determination of the bulls.

Gift Nifty futures trading on Friday showed bullish market sentiment. Although the Indian stock market was closed for the Diwali holiday, the strong performance of the futures market suggests the next trading day may see a gap-up opening. If a breakout occurs, the Nifty 50 could hit a new all-time high.

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