Why is the stock market falling despite the India-US trade deal?
This move could improve the competitiveness of Indian goods in the US market and boost exports, but despite the recency of the deal, the Indian markets are far from their bullish performance. On 19th February, Nifty 50 fell by 1.41%, reaching 25,454.35 while Sensex reached 82,498.14, slumping by 1.48%
While trade deals typically boost sentiments, many factors have worked against market expectations, ranging from uncertainty about the deal to broader global economic headwinds.
1. US-Iran War
One of the most important geopolitical headwinds weighing on the market sentiment has been the escalation of tensions between the United States and Iran. Heightened fears of military conflict contributed to a heightened risk aversion among investors, contributing to a sudden selloff that washed out investor wealth. Major benchmarks posted steep declines partly because of fears that any direct conflict could disrupt global energy supplies and increase crude prices. The Russia-Ukraine situation further adds to it.
Though the direct exposure of India's trade with Iran is relatively modest, the impact of increased geopolitical tensions globally can be felt in the broader markets through the volatility in crude oil prices and risk-off sentiment in global equities. Increased crude oil prices bring higher input prices for the import-dependent economies, like India, resulting in increased inflationary pressure and squeezing margins.
Thus, investors are moving their capital to safe-haven assets, which leads to a de-allocation of equity holdings and pressure on equity markets, such as the Sensex and Nifty.
2. Sector weakness, especially in IT
Weakness in important industries, particularly information technology, which is heavily weighted in the benchmark Nifty 50 and Sensex indices, has also been a major factor pulling markets lower.
Over the past weeks, Indian IT stocks have faced significant selling pressure, partly driven by global valuation adjustments in tech stocks like Microsoft, Amazon, Alphabet, etc. and concerns over future earnings growth.
Recent data indicates widespread losses across the major Indian IT companies, such as Tata Consultancy Services (TCS) and Infosys. 6 out of the top 10 companies have lost more than Rs 3 lakh crore in combined market capitalisation in the last few trading sessions.
3. Fed rate cut indecision and increasing bond yield
One of the key macroeconomic factors influencing Indian markets has been uncertainty surrounding the U.S. Federal Reserve's interest rate policy and the increase in global bond yields.
Historically, changes in Fed rates influence foreign capital flows into emerging markets like India. When US rates rise, Indian assets become less attractive relative to the US, which causes foreign institutional investors (FIIs) to rebalance their portfolios to the US securities; while rate cuts can lead to a flow of capital into the markets, such as India.
However, markets have recently been dealing with mixed messages from the Fed, where policymakers have been indecisive on the timeline and magnitude of future rate cuts to come. Continued reluctance on rate cuts can sustain elevated yields in U.S. bond markets, which in turn make Indian equities less appealing than fixed income.
4. Fall of the Indian Rupee
The Indian rupee has also remained under pressure, slipping against the US dollar. Rupee has recorded its all-time low on 28 Jan 2026 with an exchange rate of 92.29. As of today, 19 Feb 2026, the exchange rate is 91.14.
While currencies don’t directly determine stock prices, a weaker rupee against the U.S. Dollar makes imports expensive, especially crude oil. Higher import bills widen India's trade deficit and put downward pressure on economic growth and earnings, especially for sectors that rely on imported raw materials.
Till mid February, FII inflows have reached ₹1,374 crore. This mirrors their January behaviour with an outflow of ₹41,435 crore.
Final words
Even after the India-US trade deal, the Indian market is down with concerns over US-Iran tensions and their consequences. Indian stock markets are dynamic and multifaceted. The India-US trade is only a part of this complex system. The broader market sentiment is reflected by various reasons. Thus, market participants should consider factors like rate cuts, FIIs and DIIs inflow and outflows, corporate earnings reports, monetary policy, commodity prices fluctuations, and more.
