India-US trade deal: Have Sensex, Nifty 50 discounted 25% Trump’s tariffs amid H-1B visa fee row?

The Indian stock market is treading cautiously as investors weigh the potential impact of the US tariffs along with President Donald Trump’s latest announcement of H-1B Visa fees hike. The market finds itself in the crossroads, balancing optimism over the GST rate cuts with concerns over tariff uncertainties, high valuation, persistence foreign capital outflows and global geopolitical tensions.

Analysts believe that while expectations of US tariffs being capped at 25% are partly reflected in current market pricing, the lack of clarity continues to weigh on investor sentiment.

Prashanth Tapse, Research Analyst, Senior Vice President of Research at Mehta Equities noted that the markets are already moving in anticipation of global trade developments.

“Indian markets are currently trading with a degree of uncertainty, largely on the assumption that US tariffs may be capped at 25%. While this expectation seems to be partially priced in, recent developments such as stricter H1B visa regulations have added to market volatility, particularly in sectors like IT and services and raising questions on capping tariffs at 25%,” Tapse said.

According to Tapse, Indian equities have historically reacted ahead of key global policy decisions, often factoring in outcomes before implementation.

“If reports suggesting a tariff cap at 25% hold true, much of the impact may already be factored into current valuations. As a result, the actual day of implementation could see a modest gap-up, followed by potential profit booking as traders lock in gains,” he said.

Mohit Gulati, CIO and managing partner of ITI Growth Opportunities Fund, struck a more cautious note, and believed that the uncertainty is far from over.

“No, the Indian stock market has not fully priced in the assumption of a 25% cap on US tariffs. We are in unusually uncertain times, and markets are moving at a highly dynamic pace. While today’s valuations may reflect a 25% tariff scenario, investors remain cautious that tomorrow the assumptions could change dramatically. In short, the markets are factoring in possibilities, not certainties,” he cautioned.

Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments, underscored the market’s expectations of a favorable outcome in trade talks. “The market expects a trade deal between India and the US soon without the penal tariff of 25% and a reciprocal tariff rate below 20%. A reciprocal tariff of 25%will be a bad outcome,” he said.

Valuations Still a Concern?

The benchmark indices, Sensex and Nifty 50, are down more than 3% in the past one year-period, underperforming major global markets. However, analysts highlighted a divergence between market multiples and earnings growth.

According to Vijayakumar, market valuations continue to be higher than the long-term average.

“The principal reason for this is the poor earnings growth of only 5% in FY25. There will be a marginal improvement in earnings growth in FY26 accelerating further in FY27,” he said.

Tapse also pointed out that the earnings growth has not kept pace with the premium P/E multiples the market has traditionally commanded, leading to a gradual cooling of valuations. “As a result, a P/E contraction could bring market multiples down to more reasonable levels, potentially creating attractive entry points for long-term value investors,” he said.

However, he remained optimistic that while overall valuations are still elevated compared to other emerging markets such as China, India’s equity markets could be well-positioned for a healthy rebound if the global tariff environment stabilizes and domestic earnings recover, particularly supported by structural reforms like GST 2.0. Conversely, if global uncertainty lingers or escalates, valuation pressures are likely to persist.

Seshadri Sen, Head of Research and Strategist at Emkay Global Financial Services, said high valuations are reflective of cyclical optimism.

“The optically-rich valuations are covering for the lag in sell-side upgrades. The Nifty is at 20.8x PER 1YF, near +1sd above 5Y LTA. While elevated, we see markets partially pricing in cyclical upside from welfare spending, tax cuts, monetary easing, and GST 2.0. We expect this to deliver a strong upturn in the consumption cycle and, therefore, the high valuations do not worry us,” he explained.

Sen remains optimistic about the markets and maintains Nifty 50 target at 28,000.

Sectors in focus

Looking ahead, analysts remain constructive on select pockets, given the current macroeconomic backdrop of demand recovery, global trade uncertainty, and ongoing policy reforms.

Tapse believes certain sectors are better positioned to outperform in the near to medium term, and sees outperformance in sectors such as Auto & Auto Ancillaries, Healthcare, PSU Banks and Capital Market-Linked Stocks, supported by demand recovery and policy reforms.

With global trade negotiations, domestic policy shifts, and earnings trajectories set to play out over the next two years, market watchers agree that India’s equity story will depend on a delicate balance between external risks and internal growth drivers.

Emkay Model Portfolio

In its model portfolio, Emkay Global moved from ‘Underweight’ to ‘Neutral’ on the IT sector because of comfortable valuations and some earnings cushion from the recent weakness in the rupee. It increased exposure to Autos to play the GST theme, and trimmed exposure in Internet stocks after the strong run-up recently.

The brokerage firm added Coforge, exited One 97 Communications (Paytm), and increased weights on Maruti Suzuki India and TVS Motor Company shares.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.