India’s Handbrake Moment Is Ending

In my experience of more than 3 decades in the equity market, I have found that fundamentals create value, but certainty decides the multiple. That is why 2025 felt like India was doing the hard work at home while being forced to drive with a handbrake on. The economy held up, but valuations struggled because global investors were building a geopolitical risk premium into the India story.[EasyDNNnews:PaidContentStart]

One of the prime reasons for that was the U.S. tariff narrative. With duties imposed at levels as high as 50 per cent on Indian exports, offshore allocators were really debating visibility. Headline risk is easy to overprice because it arrives fast and rarely offers a timetable for resolution. In such phases, global money can admire India’s growth, but it hesitates to fully pay for it.

The recent United States-India trade accord has changed the tone. Cutting reciprocal tariffs from a punitive 50 per cent to a more workable 18 per cent is being read as a structural shift, not a one-day bounce. The rerating impulse is straightforward. When policy visibility improves, the discount rate falls, and multiples can expand even before earnings surprise. That is the unshackling. One major external drag has been repriced.

Domestic conditions make this more credible. India’s growth expectations, often framed in the 6.5 to 7.4 per cent range, stand out against a world struggling to sustain 2 to 3 per cent. A steadier base makes it easier for a reduction in external uncertainty to show up as valuation expansion, especially in exportlinked sectors.

Crucially, this is not a single deal story. It is closer to a trade trifecta with the United States, the European Union, and the United Kingdom earlier. The logic is pragmatic exchange. India makes measured concessions in premium imports, and in return gains cleaner access for labour-intensive, high-volume exports where it has a durable edge.

For smaller exporters, especially in textiles, the change is tangible. Moving from a 50 per cent regime to 18 per cent restores order confidence and pricing discipline. The European agreement, seen as the most ambitious, is framed around a large swap. Automobile duties are expected to fall from 110 per cent to 10 per cent within a quota of 2.5 lakh cars a year. Duties on wines and spirits are set to drop from 150 per cent into a 20 to 50 per cent band, while auto parts tariffs are scheduled for gradual removal over five to ten years. In return, tariffs on key Indian export lines are expected to ease, textiles from 12 per cent to zero, pharma from 11 per cent to zero, and aquaculture gets wider access.

The initial response was psychological. Segments most exposed to trade uncertainty moved first, and in a few smaller exporters the rebound was sharp, even touching Upper Circuits. It is not a guarantee of earnings, but it signals that disruption odds have eased materially already.

This is where portfolio discernment becomes non-negotiable. A rising tide lifts everything, including businesses that are fundamentally leaky. The cleanest beneficiaries are export-heavy, labour-intensive players that can convert access into these markets into higher margins and earnings. Pressure points remain. Quota-based imports can make some European models more price competitive at the top end, creating friction in select SUV segments, though minimum import price thresholds near the `25 lakh mark offer some insulation.

The Great Unshackling is real, but it is not a licence for greed. An 18 per cent tariff remains a cost of doing business, not a magic wand. Winners will be those with pricing power, resilient margins, and moats that survive competition. The ceiling may have lifted, but the floor remains company-specific, and long-term compounding will still belong to the well-built businesses. For readers who stayed the course with our advice, the payoff phase has begun, yet for the disciplined investor, the opportunity to add remains open.

RAJESH V PADODE
Managing Director & Editor

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