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India's external position among Asian peers improves following the interim trade framework announced between India and the United States, with exports expected to rebound and dollar inflows likely to strengthen, according to a report by JM Financial.
The report highlighted that the reduction in effective tariffs and the removal of punitive duties should support a rebound in India's trade surplus with the US. This follows the FY26 year-to-date deterioration in trade caused by elevated tariffs. Improved export flows are expected to enhance dollar inflows, support the balance of payments and provide a marginal appreciation bias to the Indian rupee. It stated, "India's relative external position improves versus several Asian EM peers that continue to face higher effective US tariffs. The agreement is a clear sentiment positive for Indian equities, particularly export-oriented sectors." From a macroeconomic standpoint, the report noted that India's relative external position has strengthened compared to several Asian emerging market peers that continue to face higher effective US tariffs. The agreement was termed a clear sentiment positive for Indian equities, particularly export-oriented sectors. However, the report cautioned that elevated absolute valuations suggest incremental foreign institutional investor (FII) inflows may be gradual rather than immediate. The interim trade deal framework was announced in a joint statement by India and the US on February 6, 2026, and is positioned as the first step towards a broader bilateral trade agreement (BTA). Under the framework, the US will apply a reciprocal tariff rate of 18 per cent on Indian goods. It also outlines a path for the removal of reciprocal tariffs on a wider set of products if the interim trade agreement (ITA) is successfully concluded. Beyond tariffs, both countries have agreed to address non-tariff barriers, establish rules of origin, strengthen supply chain resilience and work towards ambitious digital trade rules as part of the proposed BTA. The report also outlined key changes since the initial social media announcements by US President Donald Trump and Prime Minister Narendra Modi. According to the report, the US has legally withdrawn the additional 25 per cent ad valorem duty under Executive Order 14329, effective February 7, 2026. The Executive Order also stated that India has committed to cease direct and indirect imports of Russian oil and to expand purchases of US energy products. On sectoral implications, the report said electronics exports remain largely unaffected, having benefited from exemptions even under earlier tariff regimes. However, incremental beneficiaries from improved clarity include diamonds and jewellery, textiles, machinery, chemicals and automobiles, where tariff reductions are expected to materially enhance competitiveness. Overall, the report said the interim trade framework lays a strong foundation for a broader India-US trade agreement and is likely to support India's exports, external balance and market sentiment going forward. (ANI)
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