India-US Trade Breakthrough: Can Foreign Flows Reignite the Indian Equity Rally?

The world’s eyes are on the US-India trade breakthrough, but the real question for traders is whether this diplomatic handshake will actually bring foreign institutional investors (FIIs) back to Indian equities. The headlines are full of optimism, but the market has seen this movie before. The last time a big trade deal was inked, the initial euphoria faded faster than a meme stock rally. This time, though, the setup is different, and potentially explosive for those who know where to look.

According to Invezz, Indian markets have cheered the end of the impasse over the US-India bilateral trade agreement. Tariff cuts are immediate, and analysts are already speculating that this could mark the start of a new cycle of FII inflows. The Nifty and Sensex have both popped on the news, but the real story is whether this is the beginning of a sustained move or just another dead-cat bounce.

The numbers tell a complicated story. FII flows into India peaked in late 2024, then reversed as global risk appetite dried up. Since then, Indian equities have underperformed both US tech and Chinese A-shares. The new trade deal is a clear positive, but it comes against a backdrop of global uncertainty. US rates are still high, China is flirting with deflation, and Europe is stuck in a growth rut. The question is whether India can decouple from the global malaise, or whether this is just another sugar high.

Historical context is instructive. The last major FII-driven rally in India came after the 2014 elections, when Modi’s reform agenda sparked a wave of optimism and inflows. But the rally faded as reality set in. This time, the trade deal is a concrete catalyst, not just a narrative. Tariff cuts should boost exports, improve margins for Indian corporates, and make the market more attractive to global funds looking for growth. The real test will be whether the flows materialize, or whether global macro headwinds keep the lid on risk appetite.

The macro backdrop is a mixed bag. US equities are flat, with tech taking a breather and commodities in a holding pattern. There are no major economic data releases in the next week, which means the market will be driven by flows and sentiment. If FIIs start to buy, the rally could feed on itself. If not, the market could drift sideways until the next catalyst.

Strykr Watch

Technically, the Nifty is testing resistance at 22,000, with support at 21,200. The index has been rangebound for months, but the trade deal is a clear breakout catalyst. RSI is neutral, and the 50-day moving average is flattening. A clean break above 22,000 could trigger a wave of momentum buying, especially if FII flows pick up. On the downside, a break below 21,200 would invalidate the bullish thesis and signal that the rally was just another head fake.

The real tell will be the volume and composition of flows in the next two weeks. If FIIs come back in size, the rally could be sustained. If not, the market will need another catalyst to break out of its range.

The risks are clear. US rates could spike, dragging down global EM flows. A sudden reversal in risk sentiment could see FIIs pull back just as quickly as they returned. And if the trade deal turns out to be less meaningful than advertised, the market could give back its gains in a hurry.

For traders, the opportunity is to play the breakout, but with tight stops. Long Nifty on a break above 22,000, with a stop at 21,600 and a target at 23,200. On the short side, a break below 21,200 opens the door to a quick move back to 20,500. The key is to be nimble and not get married to the narrative.

Strykr Take

The US-India trade deal is a real catalyst, but it’s only as good as the flows it brings. Watch the FIIs, not the headlines. If the money comes, the rally is real. If not, this is just another false dawn. Strykr Pulse 63/100. Threat Level 3/5.