The Indian stock market's initial enthusiasm over the India-US trade deal has begun to fade, with the Sensex dropping over 600 points to an intraday low of 83,120 and the Nifty 50 falling to 25,570 during Wednesday's session. According to reports from Mint, both indices traded rangebound on February 4, swinging between gains and losses after the previous day's stellar 2.5% gains each. The mid and small-cap segments also witnessed significant selling pressure, indicating that the market's initial euphoria is giving way to more measured sentiment.
The India-US trade deal, which reduced US tariffs on Indian goods from 50% to 18%, has provided significant positive momentum for certain sectors. As reported by Mint, the deal is particularly beneficial for sectors like textiles, seafood, chemicals, auto ancillaries, and new energy businesses like solar. However, market optimism has been tempered by the need for greater clarity on deal details, with investors seeking more specific information about the agreement's implementation and scope. Recent developments show that India has maintained a resolute approach to the punitive levies even as it keeps the door open to negotiations, with Commerce Secretary Rajesh Agrawal noting that it was the third such arrangement signed last year, following earlier pacts with the United Kingdom and Oman.
A key factor limiting sustained market gains is the growth-valuation mismatch in Indian equities due to weak earnings performance. According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, quoted by Mint, the rally faces hurdles to sustain since valuations continue to be high with no fundamental support for a sustained rally. The market's focus has shifted back to fundamentals, with Ajit Mishra from Religare Broking noting that over the long term, earnings dictate market direction. Recent global developments show that US consumer confidence plummeted to 84.5 in January, the lowest level in 12 years, reflecting broader economic uncertainties that could impact global trade flows.
The broader market struggles are particularly evident in mid-cap and small-cap segments, where retail participation remains high. As reported by Mint, large-caps have held up better, keeping benchmark indices resilient, but the broader market continues to struggle due to lack of earnings stability. Mishra emphasized that unimpressive earnings, combined with elevated valuations in certain segments, have created a valuation-growth mismatch that is keeping investors cautious. Recent global trade data shows that US container imports ended 2025 in a four-month skid, with inbound volumes dropping 6.4% from a year earlier to 1.9 million 20-foot container units, reflecting broader supply chain disruptions.
Several factors continue to pose challenges for sustained market gains beyond the immediate trade deal euphoria. According to Mint reports, US President Donald Trump's unpredictability remains a key concern for markets, with no guarantee about his stance on tariffs on India. Additionally, geopolitical risks remain a key overhang, particularly regarding potential escalation involving Iran that could push crude oil prices sharply higher, impacting India as a major oil importer. For meaningful and sustained recovery, analysts emphasize that earnings growth and stability are necessary, especially for mid- and small-cap stocks. Recent global developments show that the effective tariff rate will likely peak a little above 13% in the first quarter, though this represents a significant improvement from earlier projections.