India's Market Rally: Fed Easing and U.S.-China Trade Optimism as Catalysts for Emerging Market Flows

India's economic growth in FY27 is projected at 6.4% by UBS, fueled by robust domestic consumption and fiscal stimulus measures totaling $70 billion in FY26-27, according to The Hindu Business Line. Tax cuts, GST rationalization, and direct cash transfers have bolstered disposable incomes, particularly in rural areas, where favorable monsoons and lower inflation have spurred consumption, according to The Hindu Business Line. Urban demand is equally strong, with SBI Capital Markets reporting a 41% year-on-year surge in vehicle sales and 2.7 billion UPI transactions in October 2025, according to LiveMint. The services sector expanded at 9.3% in Q3 2025, the fastest in two years, driven by trade and financial services, according to Deloitte's India Economic Outlook.

Deloitte's October 2025 report underscores India's macroeconomic resilience, noting real GDP growth of 7.8% year-on-year in Q1 FY26-27, supported by government spending and private consumption, according to Deloitte's India Economic Outlook. These fundamentals are critical for sustaining equity market momentum, even as global trade headwinds persist.

Fed Easing and U.S.-China Trade Optimism: A Global On-Ramp

The Federal Reserve's anticipated rate cuts in 2025 are reshaping capital flows. With U.S. inflation easing and two rate cuts expected, liquidity is improving, making emerging markets like India more attractive to foreign investors, according to Reuters. India's equity indices have already responded positively, with the Nifty 50 nearing record highs as FII inflows surged in October–November 2025, according to EnrichMoney.

Simultaneously, progress in U.S.-China trade negotiations is reducing global supply chain uncertainties. India, positioned as a beneficiary of manufacturing diversification, is attracting foreign capital from sectors like IT and consumer durables, according to EnrichMoney. The IT sector alone has seen a 9.50% return over three months, reflecting optimism about export opportunities, according to EnrichMoney. However, risks remain, including U.S. tariffs on Indian exports, which could impact textiles and gems.

Comparative Advantages: India vs. Other Emerging Markets

India's equity market is outperforming peers like Vietnam and Indonesia during periods of global uncertainty. Its larger, more liquid market and structural reforms-such as the Production Linked Incentive (PLI) schemes-have made it a preferred destination for capital reallocation, according to Wright Research. Vale's strategic pivot to India's steel industry, driven by 12% annual demand growth, highlights the country's infrastructure-driven appeal, according to Discovery Alert.

Compared to China's plateaued steel production, India's expanding middle class and urbanization offer long-term growth potential, according to Discovery Alert. Additionally, India's under-representation in EM portfolios (despite a 16% weight in the MSCI EM Index) suggests untapped value, according to EastSpring.

Strategic Entry Points and Sectoral Opportunities

For investors, India's equity market offers compelling entry points. Mid-cap equities, undervalued and stable in ownership, are attracting renewed interest, according to Times of India. Sectors like IT, consumer durables, and infrastructure are poised to benefit from both Fed easing and trade optimism, according to EnrichMoney.

Real estate is another bright spot, with institutional investments reaching $4.7 billion in 2025, driven by foreign capital's appetite for office and logistics assets, according to Economic Times. Meanwhile, the services sector's 9.3% growth in Q3 2025 underscores the importance of domestic demand as a buffer against global volatility, according to Deloitte's India Economic Outlook.

Conclusion

India's equity market rally is underpinned by a unique blend of structural reforms, domestic demand resilience, and global macroeconomic shifts. As Fed easing and U.S.-China trade optimism drive capital flows, India's strategic advantages-ranging from fiscal stimulus to infrastructure growth-make it a compelling case for emerging market exposure. Investors who act now may capitalize on a market poised for sustained expansion.