Indian Stock Market Analysis: February 3, 2026

Historic Trade Deal Catalyzes Market Revival Amid Structural Economic Realignment

Tuesday, February 3, 2026, marks a watershed moment for Indian capital markets as benchmark indices witnessed one of their most spectacular single-day rallies in recent history. The BSE Sensex skyrocketed by over 4,200 points (5.1%) to touch 85,871 levels during intraday trading, while the NSE Nifty 50 surged 1,252 points (5%) to breach the 26,341 mark. This explosive upward movement, catalyzed by the landmark India-US trade agreement announced on February 2, has fundamentally altered the investment landscape and market sentiment, effectively erasing months of foreign investor pessimism that saw $23 billion in outflows from Indian equities since 2025.

The confluence of multiple positive developments—including the historic India-US tariff reduction from 50% to 18%, the continuing impact of the India-EU "mother of all deals," a strengthening rupee recovering to 90.3 per dollar from 92 levels, and expectations of crude oil prices collapsing to $50 per barrel by June 2026—has created a perfect storm of bullish catalysts. This comprehensive analysis examines the intricate dynamics shaping India's market trajectory, the sectoral winners and losers emerging from this new trade architecture, and the macroeconomic implications for Asia's third-largest economy.

The India-US Trade Deal: Anatomy of a Game-Changer

The centerpiece of today's market euphoria is the groundbreaking trade agreement between New Delhi and Washington. The deal's core provisions have profound implications for Indian exporters and the broader economy.

Tariff Structure Transformation

The United States has slashed its reciprocal tariffs on Indian goods from a punitive 50% (comprising a base 25% plus an additional 25% penalty imposed for Russian oil purchases) down to 18%. To put this in perspective, India's primary competitors like Bangladesh and Sri Lanka face 20% tariffs, while Chinese products continue to bear 34% levies. This 18% rate effectively positions India as the most competitive Asian manufacturing hub for the US market, a strategic advantage estimated to boost bilateral trade by 41-65% over the next three years.

India's Reciprocal Commitments

In exchange for tariff relief, India has pledged to eliminate its own tariffs and non-tariff barriers on US goods. A major geopolitical realignment accompanies this deal: Prime Minister Narendra Modi has committed to cease all Russian oil purchases, which had previously peaked at over 2 million barrels per day. Additionally, India will purchase over $500 billion worth of US goods, including energy (petroleum and natural gas), defense systems, electronics, pharmaceutical products, and commercial aircraft.

Immediate Market Impact

• Investor Wealth: Expanded by approximately ₹13 lakh crore within the first 15 minutes of trading.
• Total Market Capitalization: BSE-listed companies reached a record ₹468.32 lakh crore.
• Fear Gauge: The India VIX paradoxically rose over 7%, reflecting the sheer magnitude of the volatility rather than typical anxiety.
• GIFT Nifty: Surged 800-1,000 points in overnight trading prior to the domestic open.

Sectoral Winners: The Export Renaissance

The tariff reduction has created immediate winners across India’s export-oriented sectors. Below is a breakdown of the top performing segments:

Ashwin Chandran (CITI) and A. Sakthivel (AEPC) both emphasized that this reduction ensures Indian exporters can compete effectively, specifically highlighting opportunities in hubs like Tiruppur, Karur, and Erode.

The India-EU Free Trade Agreement: Parallel Tailwinds

Announced on January 27, 2026, the India-EU FTA (the "mother of all deals") creates a free-trade zone for 2 billion people, representing 25% of global GDP and a market worth $27 trillion.

Key Provisions of the India-EU FTA

• Tariff Phase-out: The EU will reduce duties on 90% of Indian goods immediately, reaching 96.6% over seven years.
• Automotive Sector: India will slash tariffs on EU cars from 110% to 30-35% initially, eventually falling to 10%. Annual import limits of 160,000 ICE and 90,000 EV vehicles remain in place.
• Alcoholic Beverages: Tariffs of 150% will fall to 20-30% for wines and 40% for spirits.
• Trade Target: Bilateral goods trade is expected to rise from $136 billion to $200 billion by 2030.

Kumar Mangalam Birla welcomed the deal, stating it will shape more resilient supply chains and drive long-term competitiveness. Geopolitically, Harsh Pant (ORF) suggests this signals that India and the EU are willing to move forward with their own agendas regardless of US protectionism.

Q3 FY26 Earnings Season: Mixed Corporate Performance

On February 3, over 100 companies reported results. While the market rally was broad-based, corporate fundamentals showed a nuanced picture.

Gautam Adani noted the results reflect the strength of the group's incubator model and diversified infrastructure portfolio. Conversely, AWL Agri Business disappointed with profit falling 34.5%, and Bharat Coking Coal moved to a net loss of ₹23 crore.

Monetary Policy Outlook: RBI's February Dilemma

The RBI Monetary Policy Committee (MPC) meets February 4-6, 2026. Despite CPI inflation being near 2% since August 2025 (well below the 4% target), experts expect caution.

• Consensus: 20 out of 30 experts poll by GoodReturns expect status quo on the repo rate at 5.25%.
• Rationale: Shubham Gupta (Growthvine Capital) suggests the RBI will prioritize macro stability and currency protection over immediate easing.
• Fiscal Context: The Union Budget 2026 announced a capital expenditure of ₹12.2 lakh crore for FY 2026-27, which acts as a stimulus, potentially reducing the need for rate cuts.

Currency and Commodities: Rupee Strength & Oil Windfall

Rupee's Remarkable Recovery

The Indian rupee surged to 90.3 per USD, recovering from record lows of 92 in January. Nilesh Shah (Kotak Mahindra AMC) noted the trade deal removes the "hanging sword" over the currency. With $23 billion in FII outflows during 2025, analysts expect a strong reversal of foreign capital into Indian equities.

The $50 Oil Forecast

SBI Research predicts crude oil will collapse to $50 per barrel by June 2026. As India imports 85% of its crude, this delivers:

1. Inflation Suppression: FY27 CPI expected to stay below 3.4%.
2. Current Account Relief: Each $10 drop saves India $15 billion annually.
3. Sectoral Gains: Benefits Oil Marketing Companies (BPCL, IOCL, HPCL), aviation (IndiGo), and paint manufacturers (Asian Paints).

Technical Outlook: Levels to Watch

Technical analyst Vipin Dixena highlights that despite the rally, the Sensex remains below the 50 EMA, suggesting the short-term trend is still stabilizing.

• Sensex Support: 81,350-81,400 (immediate); 80,400 (critical floor).
• Sensex Resistance: 82,500-83,000; psychological 84,000 is crucial for a sustained bull run.
• Nifty Support: 25,000-25,050; 24,850 as a major floor.
• Nifty Resistance: 25,800-26,000; next target is 26,500.

JPMorgan has set a long-term target of 30,000 for Nifty, implying a 15-16% upside if earnings and FII flows remain consistent.

Key Takeaways for Investors

• Sectoral Allocation: Consider an overweight stance on Textiles, Seafood, Gems & Jewellery, and Housing Finance. Monitor Oil Exploration (ONGC) and Gas Utilities (GAIL) with caution due to price pressures.
• Currency Factors: Rupee appreciation benefits IT Services margins and reduces import costs for Electronics and Renewable Energy sectors.
• Earnings Focus: Q4 FY26 results will be the litmus test for whether these trade deals translate into bottom-line growth. Look for specific export guidance.
• Risk Monitoring: Watch the RBI MPC decision (Feb 4-6) and FII flow data to see if the sentiment shift is permanent.