Indian equity markets continued their upward trajectory for the second consecutive week, bolstered by growing optimism surrounding new trade agreements with the European Union and the United States. Despite a brief dip following the presentation of the 2026 budget – triggered by an increase in the Securities Transaction Tax (STT) on futures and options (F&O) trades – both the Sensex and the Nifty 50 have demonstrated resilience, climbing over 5 percent from their February 1st lows.
On , the Sensex closed up 0.5 percent at 84,000, while the Nifty gained 0.6 percent to reach 25,840. This positive momentum reflects investor confidence in the evolving economic landscape and the potential benefits stemming from strengthened international trade relations.
However, analysts caution against excessive exuberance, suggesting that the current market levels may have already priced in much of the anticipated gains from these trade deals. Equinomics Research founder and head of research, G. Chokkalingam, believes “the worst seems to be over for the markets, from a short-to-medium term perspective.” He highlighted the significance of the EU and US as key export destinations for India, and anticipates a stabilization of the rupee alongside a gradual return of foreign investment. Chokkalingam recommends a strategy of accumulating small- and mid-cap stocks for short-to-medium term gains.
UR Bhat, co-founder & director at Alphaniti Fintech, adopts a more measured stance. While acknowledging the positive signal sent by the trade agreements, he emphasizes the need to await further details regarding the India-US trade deal before making definitive assessments. “The markets are likely to react to the trade deal fine print,” Bhat stated. He advises investors to remain patient and consider entering the market only if the Nifty experiences a 2-3 percent correction from its current levels.
Sectoral performance has been varied. Nifty Energy, Realty, and Consumer Durables have led the gains, rising between 7 and 10 percent during this period. Conversely, the Nifty IT sector has lagged behind, experiencing a nearly 7 percent decline, according to ACE Equity data.
Technical Outlook and Key Levels
From a technical perspective, Nandish Shah, senior derivative and technical analyst at HDFC Securities, points to a potential test of the 25,800 level for the Nifty. A successful breach of this resistance could pave the way for a rally towards 26,100. Conversely, he identifies strong support levels around 25,500-25,550, which could limit any potential downside.
Ponmudi R, CEO of Enrich Money, notes that the Nifty is currently trading above all its major moving averages (20-, 50-, 100-, and 200-day EMAs), indicating a positive technical setup. He emphasizes the importance of maintaining levels above 25,700 to sustain the positive momentum. A dip below 25,650, however, could signal caution and potentially trigger profit-taking or consolidation.
Ponmudi R further details key support levels in the 25,500–25,600 zone, where the 50- and 100-day EMAs converge. He identifies 26,000 as a significant psychological resistance level, with a sustained breakout potentially leading to new all-time highs. Momentum indicators, including the Relative Strength Index (RSI) around 55, suggest improving upside momentum, and the MACD is gradually turning positive. His overall bias remains positive, anticipating a range-bound to upward trend as long as the 25,550–25,600 support zone holds.
Implications of Trade Agreements
The recent progress in trade negotiations with the EU and the US is a significant development for the Indian economy. These agreements are expected to facilitate increased exports, attract foreign investment, and contribute to overall economic growth. The impact on specific sectors will likely vary, with industries heavily reliant on exports – such as pharmaceuticals, textiles, and engineering goods – potentially benefiting the most.
The STT hike on F&O trades, announced in the 2026 budget, initially caused market jitters. However, the market has largely absorbed this impact, suggesting that investors view it as a temporary setback rather than a fundamental deterrent to growth. The long-term implications of this tax increase remain to be seen, but it could potentially moderate speculative activity in the derivatives market.
Investor Strategy
Given the current market conditions, a cautious yet optimistic approach appears warranted. While the potential for further gains exists, investors should be mindful of the possibility of a correction. The advice from analysts suggests a strategy of selective accumulation, focusing on fundamentally sound companies with long-term growth potential. Small- and mid-cap stocks may offer attractive opportunities, but investors should conduct thorough due diligence before making any investment decisions.
For those already invested, maintaining a long-term perspective and avoiding impulsive reactions to short-term market fluctuations is crucial. The evolving trade landscape and the overall economic outlook suggest that India is well-positioned for continued growth, but navigating the market successfully will require a disciplined and informed approach.
