US-India Trade Engagement: Gradual Benefits Expected, Markets Remain Cautious

Despite renewed optimism around the US–India trade engagement, Indian equity markets have struggled to build sustained momentum. The evolving trade framework, which focuses on strategic sectors such as manufacturing, technology, clean energy and supply-chain integration, has been positioned as a long-term structural positive rather than an immediate growth trigger, according to an HSBC analysis. Data from the report shows that India–US bilateral trade has crossed $190 billion annually, making the United States India’s largest trading partner. However, markets have so far shown restraint, reflecting a disconnect between long-term trade potential and near-term earnings and valuation dynamics . HSBC notes that the current engagement does not resemble a traditional free trade agreement that could deliver quick tariff-led gains. Instead, it is a sector-by-sector, investment-led framework, with benefits expected to accrue gradually through capital flows, joint ventures and supply-chain realignment. The report highlights that trade discussions are concentrated on high-value sectors such as semiconductors, electronics, defence manufacturing, critical minerals, and clean energy, while politically sensitive areas like agriculture account for a relatively smaller share of bilateral trade value. This limits the scope for near-term, broad-based earnings upgrades across listed companies. HSBC flags valuation concerns as a key reason for muted market response. Indian equities continue to trade at a premium to several emerging market peers, reflecting already-priced-in growth expectations. In such a scenario, positive trade developments alone are insufficient to trigger a sharp re-rating unless accompanied by visible earnings acceleration. The report suggests that investors are seeking clearer transmission of trade progress into corporate revenue growth, order inflows, and margin expansion, which remains uneven across sectors. Also read:Bitcoin Slides to 16-Month Low Near $60,000 as Crypto Market Contracts According to HSBC, uncertainty around the global growth outlook, tighter financial conditions, and geopolitical risks have dampened risk appetite. Global investors remain cautious, particularly toward emerging markets, as capital flows respond more to global liquidity conditions than to bilateral trade headlines. The report also flags that US political timelines, including election-year uncertainty, could slow the pace of implementation, reinforcing the view that trade benefits will be front-loaded in announcements but back-loaded in execution. HSBC underlines that sustained market upside will depend on tangible outcomes such as: