Indian equities and the rupee have lagged behind the recent emerging market upsurge but may now be at a turning point. The progress on a US-India trade deal, following an agreement with the EU, has injected optimism into stocks and market sentiment.
Prospects are bolstered by fiscal discipline, infrastructure spending, high real yields, and the rupee’s undervaluation. The US-India trade deal discussions, with US tariffs potentially reducing to 18%, have catalysed a surge in Indian stocks.
Undervaluation Of The Rupee
An undervalued rupee presents opportunities for favourable foreign exchange returns. For fixed income assets, downward inflation pressure could maintain high real yields, enhancing the appeal of Indian government bonds globally.
We’ve seen Indian stocks miss the broader emerging market rally that took place late last year. This suggests a potential turning point is near, making call options on Indian indices like the NIFTY 50 an interesting strategy for the coming weeks. For instance, while the MSCI Emerging Markets Index gained nearly 12% in the last quarter of 2025, the NIFTY 50 only managed a 4% rise, highlighting this performance gap.
Recent progress on a US-India trade deal, aiming to lower some tariffs to 18%, is a major catalyst for positive sentiment. This news, following the groundwork laid by the EU trade agreement discussions throughout 2025, should support buying bullish call spreads to capitalize on upward momentum while limiting risk. It creates a favorable environment for export-oriented sectors, which could see their stock prices react positively.
Rupee Weakness
The rupee has also been weak, which offers a unique opportunity for returns on the currency itself. After weakening to over 85 against the dollar in late 2025, its current undervalued position suggests looking at derivatives that profit from a stronger rupee, such as USD/INR put options. This essentially provides two ways to gain from India’s improving outlook through both its stocks and its currency.
The underlying economic picture appears solid, adding credibility to these bullish trades. We saw the Reserve Bank of India successfully steer inflation down towards its 4% target last year, which has kept India’s real yields attractive compared to global peers. This stability, combined with continued government spending on infrastructure, reduces the downside risk for those selling out-of-the-money put options to collect premium.
