India is gearing up to offer significant trade concessions to the United States ahead of Prime Minister Narendra Modi’s February meeting with US President Donald Trump in Washington, DC, focused on ensuring geopolitical alignment and alleviating trade imbalances. In 2024, two-way trade between the nations surpassed US$129 billion, with India posting a surplus of over US$45 billion.1
In a recent statement, Modi, who has been quick to highlight a “strong, personal” relationship with Trump, struck a conciliatory tone and called the visit a chance “to build upon the successes of our collaboration in his (Trump’s) first term.”
Trade ties between the United States and India have grown steadily in the past decade, with Washington increasingly viewing the subcontinent as a counterbalance to China’s growing regional influence. With reciprocity becoming a central theme in negotiations during the Trump 2.0 era, global investors are eagerly seeking insights into policy tailwinds and gauging how far foreign leaders might be willing to align with Trump’s priorities.
In a recent move aimed at appeasing Trump, Modi vowed to collaborate with the United States to repatriate approximately 18,000 undocumented Indian nationals living in the country. An estimated 725,000 unauthorized immigrants from India reside in the United States, according to the Pew Research Center.
Modi—who has spoken confidently about his ambitious goal to turn India into a developed nation by 2047—will be seeking to restore the preferential trade status with the United States that India had benefited from until a key trade program known as the Generalized System of Preferences expired five years ago.
India’s efforts toward financial inclusion and fintech innovation appear to us to be aiding its financial, consumer discretionary and technology industries, the three heaviest-weighted sectors in the BSE 200 Index.2 Sluggish credit growth and high youth unemployment remain challenges for the economy. However, the country’s 2025 budget includes tax cuts and other reforms that are expected to stimulate growth and attract investment. Equity valuations are also now below their long-term averages.3 Notwithstanding short-term volatility, at a current price-to-earnings ratio of 22x, we believe investors may find the Indian market more attractively valued today than at any point since general elections were held last June.4
Conversely, US stock valuations seem currently richly valued, in our analysis. While they have not yet reached the heights seen during the “dot-com” boom, the threat of inflation could dampen market optimism. We believe broader international exposure, including allocations to India, may help mitigate volatility and provide a more stable investment environment.
For its part, India has also been bolstering its export-oriented domestic manufacturing through actively securing numerous new free-trade trade agreements (FTAs) that exclude the United States. These include FTAs with the United Arab Emirates, Australia and the European Free Trade Association (EFTA). The Indian government is also in ongoing negotiations with the United Kingdom, Oman and the European Union. Some economists predict that India’s economy will see significant gains from these FTAs, with forecasts suggesting that foreign direct investment (FDI) may increase as investors are drawn to improved market access and integration as well as a more competitive environment. An agreement between India and EFTA nations, for example, promises US$100 billion in FDI into the country over 15 years.5
Considering that both the United States and India are motivated to blunt China’s Belt and Road Initiative (which aims to improve regional integration, increase trade and stimulate economic growth through connecting Asia with Africa and Europe via land and maritime networks), we believe there continues to be strong incentives that should benefit India, Asia’s most populous nation.
WHAT ARE THE RISKS?
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Equity securities are subject to price fluctuation and possible loss of principal. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.
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1. Source: “Trade in Goods with India.” US Census Bureau. 2024.
2. The BSE 200 Index is designed to measure the performance of the top 200 companies listed at BSE Ltd., based on size and liquidity across sectors. Indexes are unmanaged and one cannot directly invest in them. They do not include fees, expenses or sales charges. See www.franklintempletondatasources.com for additional data provider information.
3. Source: Bloomberg as of February 10, 2025.
4. Ibid.
5. Source: “Free-Trade Agreements Add to Manufacturing Appeal.” Bloomberg. January 20, 2025.
