India-US Trade Deal: Investors earn ₹12.5 lakh crore as Sensex, Nifty 50 rally- What should you do now?

India-US trade deal: Indian stock markets witnessed a historic surge on Tuesday, February 3, delivering one of the strongest single-day rallies in recent memory after India and the U.S. announced the long-awaited trade deal. The breakthrough eased months of tariff uncertainty that had kept investor sentiment restrained and foreign flows cautious.

The benchmark BSE Sensex jumped more than 4,200 points, rising 5.1% to touch an intraday high of 85,871.73. The Nifty 50 climbed 1,252 points, or 5%, to 26,341.2 during the session.

However, later some gains were pared. The benchmark BSE Sensex ended 2072.67 points higher or 2.54% to end at 83,739.13. The Nifty 50 climbed 629.75 points, or 2.51%, to settle at 25,718.15 during the session. Nifty Smallcap and Nifty Midcap indices also surged around 3% in trade today.

The sharp move also led to a massive rise in investor wealth. The combined market capitalisation of BSE-listed companies increased to ₹467.35 lakh crore from ₹455 lakh crore in the previous session, translating into a gain of more than ₹12.5 lakh crore in a single day as participation broadened across sectors.

Reasons for the surge

At the heart of the surge was the announcement of a trade pact between India and the United States. After prolonged negotiations, U.S. President Donald Trump confirmed that reciprocal tariffs on Indian goods would be reduced to 18%, a steep cut from the earlier 50%. In return, India agreed to significantly lower both tariff and non-tariff barriers on American products, effectively bringing them down to zero.

US President Donald Trump confirmed the development, saying, “We agreed to a Trade Deal between the United States and India, whereby the United States will charge a reduced Reciprocal Tariff, lowering it from 25% to 18%. They will likewise move forward to reduce their Tariffs and non-tariff barriers against the United States to ZERO,” signalling swift implementation and mutual market access.

Moreover, a strengthening rupee contributed to the improving mood across domestic financial assets, cushioning some of the impact from turbulence in global markets. The Indian currency opened at 90.40 against the dollar, firmer than the previous close on the tariff development.

The agreement removed a major overhang that had clouded market outlook for months. Investors interpreted the development as a decisive step toward restoring trade stability, improving export prospects, and strengthening India’s position in global supply chains.

What Should Investors do?

Market experts believe this development can flip sentiment decisively, trigger short-covering across indices and derivatives, and pull foreign money back into large, fairly valued blue chips. The implication for investors is clear: sentiment, positioning, and global capital flows are turning supportive at the same time.

According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, the market has already begun anticipating these positives. He said, “The combination of US-India trade deal, the EU-India trade deal and the growth-oriented Budget will boost the market sentiments and the animal spirits in the economy. The stock market, anticipating and discounting these developments will boom.”

Vijayakumar highlighted banking leaders, non-banking financials, telecom blue chips, capital goods, and IT as potential beneficiaries. He also flagged textiles as an area of special focus amid improving trade linkages. For investors, this suggests that leadership may come from quality largecaps first, before the momentum spreads deeper into midcaps and smallcaps, he added.

Short-covering could add fuel to the rally

A key technical factor is the market’s large short base. When positive news hits an oversold and heavily shorted market, the initial up-move often forces traders to cover positions, accelerating gains beyond what fundamentals alone might justify in the short term.

Vikram Kasat, Head Advisory at PL Capital, pointed to this setup, saying, “This positive surprise will force many participants, including FPIs who are heavily short in the market, to cover their positions, which should lead to a sharp surge across indices and derivative stocks in today's session.”

Such phases typically see sharp moves not just in benchmark indices but also in high-beta derivative counters, where positioning is concentrated.

Vijayakumar added that the rally is likely to be broad-based across market caps. However, he believes largecaps — especially those already preferred by foreign investors — are best placed to outperform as overseas flows return.

He said, “Technically, the market which is hugely short, will witness short-covering adding fuel to the rally. The rally will be widespread across market caps; but the largecaps which are fairly valued have the potential to outperform aided by FII inflows.”

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.