India’s markets opened on Monday with cautious optimism after a US court ruling against tariffs. The Indian Rupee rose modestly after hovering near the 91-per-dollar level on Friday.
Earlier in the month, US tariffs on India were reduced from 50% to 18% after the first tranche of a bilateral trade agreement. Following the ruling, the 18% reciprocal tariff under IEEPA is expected to be treated as invalid.
After the ruling, India’s tariff treatment is expected to revert to MFN terms plus a 15% umbrella levy for 150 days. Key sectors remain exempt, and further economic lift is expected to be limited.
Looking back at the events of 2025, we saw a modest relief rally in the Indian rupee after a US court invalidated the 18% tariff. This happened after the tariff had already been lowered from a much steeper 50%, meaning the most significant market impact was already priced in. The rupee recovered from near the 91-per-dollar mark, but the rally was cautious.
Since that ruling last year, we have seen the USD/INR pair find a new equilibrium, largely trading in a range between 89.50 and 90.75 throughout late 2025. Data released for the two quarters following the decision confirmed the limited economic lift, with non-exempt exports to the US growing a meager 2.1%. This stability shows the market correctly interpreted the ruling as a removal of tail risk rather than a major new growth catalyst.
For derivative traders, the primary effect we observed was a decline in implied volatility for USD/INR options. The removal of the tariff overhang meant less uncertainty, causing one-month implied volatility to compress from over 8% to a steadier 6% in the weeks that followed the 2025 ruling. This created a more favorable environment for strategies that profit from range-bound currency movements and declining volatility.
This environment made selling option premium, through strategies like short strangles, an effective approach for much of the second half of 2025. With lower expected price swings, the income generated from selling calls and puts outside the expected trading range proved profitable. Traders, however, remained watchful of the 150-day timeline for the replacement 15% umbrella levy, which introduced a future catalyst for change.
As we approach the coming weeks in early 2026, the key is to recognize that this period of lower volatility may be ending as new trade negotiations are rumored to be on the agenda. Historical data from the 2024-2025 period shows that even whispers of tariff talks can cause volatility to spike sharply. Therefore, traders should consider buying protection through long vega positions or using options to hedge against a potential breakout from the established range.
